NATIONAL REALTY L P, 10-K405, 2000-03-28

NATIONAL REALTY L P
10-K405, 2000-03-28
REAL ESTATE OPERATORS (NO DEVELOPERS) & LESSORS

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<PAGE>

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

--------------------

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the Year Ended December 31, 1999

Commission File Number 1-9648

--------------------

National Realty, L.P.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 75-2163175
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

10670 North Central Expressway,
Suite 300, Dallas, Texas 75231
(Address of Principal Executive Offices) (Zip Code)

(214) 692-4700
Registrant's Telephone Number, Including Area Code

--------------------

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which
Units of Limited Partner Interest registered
American Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:
NONE

--------------------

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
Yes [X] No [ ].

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of March 3, 2000, the Registrant had 6,321,522 units of limited partner
interest outstanding. Of the total units outstanding, 2,032,978 were held by
other than those who may be deemed to be affiliates, for an aggregate value of
$32,780,000 based on the last trade as reported on the American Stock Exchange
on March 3, 2000. The basis of this calculation does not constitute a
determination by the Registrant that all of such persons or entities are
affiliates of the Registrant as defined in Rule 405 of the Securities Act of
1933, as amended.

Documents Incorporated by Reference:

NONE

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<PAGE>

INDEX TO

ANNUAL REPORT ON FORM 10-K

PART I

Page
----
Item 1. Business........................................................ 3

Item 2. Properties...................................................... 7

Item 3. Legal Proceedings............................................... 24

Item 4. Submission of Matters to a Vote of Security Holders............. 26

PART II

Item 5. Market for Registrant's Units of Limited Partner Interest and
Related Security Holder Matters............................... 26

Item 6. Selected Financial Data......................................... 28

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 29

Item7A. Quantitative and Qualitative Disclosures Regarding Market Risk.. 38

Item 8. Financial Statements and Supplementary Data..................... 40

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 81

PART III

Item 10. General Partner of the Registrant and Executive Officers of the
Registrant's General Partner.................................. 81

Item 11. Executive Compensation.......................................... 85

Item 12. Security Ownership of Certain Beneficial Owners and Management.. 87

Item 13. Certain Relationships and Related Transactions.................. 88

PART IV

Item 14. Exhibits, Consolidated Financial Statements, Schedules and
Reports on Form 8-K........................................... 91

Signature Page............................................................ 94
<PAGE>

PART I

ITEM 1. BUSINESS

General

National Realty, L.P. ("NRLP") is a Delaware limited partnership formed on
January 29, 1987. Its primary business is owning and operating through National
Operating, L.P., also a Delaware limited partnership ("NOLP"), a portfolio of
real estate and financing real estate and real estate activities through
investments in mortgage loans as more fully described in ITEM 2. "PROPERTIES--
Real Estate" and ITEM 2. "PROPERTIES--Mortgage Loans." Most of NRLP's properties
were acquired in exchange transactions consummated on September 18, 1987, when
NRLP acquired all of the assets, and assumed all of the liabilities, of 35
public and private limited partnerships. Unless earlier dissolved, in accordance
with the provisions of NRLP's Agreement of Limited Partnership, the partnership
will terminate December 31, 2086.

NOLP was formed on February 27, 1987, to facilitate compliance with recording
and filing requirements by holding title to and operating the real estate owned
by NRLP. NRLP and NOLP operate as an economic unit and, unless the context
otherwise requires, all references herein to NRLP shall constitute references to
NRLP and NOLP as a unit. NRLP is the sole limited partner of NOLP and owns a 99%
beneficial interest in NOLP. In November 1992, NRLP refinanced 52 of the
apartments in its real estate portfolio and the underlying debt of a wraparound
mortgage note receivable with a financial institution. To facilitate such
refinancing, NOLP transferred these assets to Garden Capital, L.P. ("GCLP"), a
Delaware limited partnership. NOLP is the sole limited partner in GCLP. GCLP is
the sole limited partner in the single asset limited partnerships which were
formed for the purpose of acquiring, operating and holding title to the
apartments and wraparound mortgage note transferred by NOLP.

The general partner, and owner of 1% of a beneficial interest in each of NRLP
and NOLP, is NRLP Management Corp. ("NMC"), a Nevada corporation and wholly-
owned subsidiary of American Realty Trust, Inc. ("ART"), a publicly held real
estate company. The general partner and owner of a .7% beneficial interest in
GCLP and a 1% beneficial interest in the GCLP single asset operating
partnerships, is Garden National Realty, Inc. ("GNRI"), also a Nevada
corporation and wholly-owned subsidiary of ART. As of March 3, 2000, ART owned
approximately 55.4% of NRLP's outstanding units of limited partner interest. See
ITEM 12. "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."

All decisions relating to the operation of NRLP, including the acquisition,
disposition, improvement, financing or refinancing of NRLP's properties or other
investments, are made by NMC. Basic Capital Management, Inc. ("BCM") performs
certain administrative functions for NRLP, such as accounting services, mortgage
servicing and portfolio review and analysis, on a cost reimbursement basis. BCM,
or affiliates of BCM, also perform loan placement services, leasing services,
real

3
<PAGE>

ITEM 1. BUSINESS (Continued)

estate brokerage and property management services with respect to certain of
NRLP's properties and may perform other services for NRLP for fees and
commissions. BCM is a company owned by a trust for the benefit of the children
of Gene E. Phillips. Karl L. Blaha, President and Director of NMC, the general
partner of NRLP and NOLP, also serves as President of BCM, Income Opportunity
Realty Investors, Inc. ("IORI") and Transcontinental Realty Investors, Inc.
("TCI") and as President and director of ART. Collene C. Currie, a Director of
NMC, also serves as director of ART. The officers of NMC also serve as officers
of BCM, IORI, TCI and ART. BCM provides advisory services to IORI, TCI and ART.

Since February 1, 1990, affiliates of BCM have provided property management
services for NRLP's properties. Currently, Triad Realty Services, Ltd. ("Triad")
provides such property management services. See "Management and Operations,"
below.

Proposed Transaction with American Realty Investors, Inc.
- ---------------------------------------------------------

On November 3, 1999, NRLP and ART jointly announced their agreement to combine,
in a tax free exchange, under the ownership of a new company to be named
American Realty Investors, Inc. ("ARI"). ARI will distribute shares of its
common stock to ART stockholders and NRLP unitholders. NRLP unitholders, except
for ART, will receive one share of ARI common stock for each unit of NRLP held.
ART stockholders will receive .91 shares of ARI common stock for each share of
ART common stock held. ART preferred stock will convert into one share of
preferred stock of ARI, having substantially the same rights as ART's preferred
stock. The share exchange and merger were subject to a vote of
stockholders/unitholders of both entities. Approval required the vote of the
unitholders holding a majority of NRLP's outstanding units, and the vote of the
stockholders holding a majority of ART's outstanding shares of common and
preferred stock. As of March 3, 2000, ART owned approximately 55.4% of the
outstanding units of NRLP and BCM owned approximately 12.4% of the outstanding
units of NRLP and 56.9% of the outstanding shares of ART's common stock. At
special meetings held on March 21, 2000, the NRLP unitholders and ART
stockholders approved the merger proposal. The merger is expected to be
completed early in the second quarter of 2000.

Business Plan

NRLP's primary business is owning and operating a portfolio of real estate and
financing real estate through mortgage loans. Information regarding NRLP's real
estate portfolio is set forth in ITEM 2. "PROPERTIES--Real Estate" and Schedule
III to the Consolidated Financial Statements, included in ITEM 8. "FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA." In addition, NRLP owns interests in mortgage
loans that were either funded by NRLP or that arose from the sale of NRLP
properties which are secured by various commercial properties, land and
partnership interests in income producing properties, as set forth in ITEM 2.
"PROPERTIES--Mortgage Loans" and Schedule IV to the Consolidated Financial
Statements included in ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."

4
<PAGE>

ITEM 1. BUSINESS (Continued)

Business Plan (Continued)

Management's business objectives are to increase asset values and to generate
cash available for distribution to unitholders through aggressive management of
NRLP's real estate and mortgage notes receivable portfolios. Management intends
to curtail NRLP's lending activity to only those instances where it can take
advantage of favorable interest rate spreads or profit participation
opportunities or in conjunction with a property sale by providing purchase money
financing. However, management's primary emphasis remains on capital
appreciation rather than current income. NRLP has made quarterly distributions
since the fourth quarter of 1993. In each quarter of 1999, NRLP declared a
quarterly distribution of $.125 per unit or total distributions of $.50 per unit
for a total of $3.2 million.

At the discretion of NMC, NRLP may, from time to time, acquire or sell
properties and other assets, renovate or make improvements to properties, make
additional investments or obtain additional or initial financing for its
properties.

NMC is responsible for the establishment, implementation and modification of the
business objectives and policies of NRLP, and, in general, the limited partners
have no voting rights with respect to such matters. NRLP's primary business
purpose is the ownership of improved, income-producing real estate, but NRLP may
also conduct any business that may lawfully be conducted under the Delaware
Revised Uniform Limited Partnership Act.

Management and Operations

Since February 1, 1990, affiliates of BCM have provided property management
services to NRLP. Currently, Triad provides such property management services.
Triad subcontracts with other entities for the property-level management
services to NRLP. The general partner of Triad is BCM. The limited partners of
Triad are Syntek West, Inc., a company owned by Gene E. Phillips, and Mr.
Phillips. Triad subcontracts the property-level management and leasing of 12 of
NRLP's commercial properties to Regis Realty, Inc. ("Regis"), which is a company
owned by Syntek West. Regis is entitled to receive property and construction
management fees and leasing commissions in accordance with the terms of its
property-level management agreement with Triad.

BCM performs administrative functions such as accounting services, mortgage
servicing and portfolio review and analysis for NRLP on a cost reimbursement
basis. Affiliates of BCM also perform loan placement services, leasing services
and real estate brokerage, and other services for NRLP for fees and commissions.

Competition

The real estate business is highly competitive and NRLP competes with numerous
entities engaged in real estate activities (including certain

5
<PAGE>

ITEM 1. BUSINESS (Continued)

Competition (Continued)

entities described in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--
Certain Business Relationships,") some of which may have greater financial
resources than NRLP. Management believes that success against such competition
is dependent upon the geographic location of the property, the performance of
the property managers in areas such as marketing, collection and control of
operating expenses, the amount of new construction in the area, and the
maintenance and appearance of the property. Additional competitive factors with
respect to commercial properties are the ease of access to the property, the
adequacy of related facilities, such as parking, and sensitivity to market
conditions in setting rent levels. With respect to apartments, competition is
also based upon the design and mix of units and management's ability to provide
a community atmosphere for the tenants. Management believes that beyond general
economic circumstances and trends, the rate at which properties are renovated or
the rate new properties are developed in the vicinity of each of NRLP's
properties are also competitive factors.

To the extent that NRLP seeks to sell any of its properties, the sales prices
for such properties may be affected by competition from other real estate
entities and financial institutions also attempting to sell their properties
located in areas in which NRLP's properties are located, as well as aggressive
buyers attempting to penetrate or dominate a particular market.

As described in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--
Certain Business Relationships," the officers and certain directors of NMC are
also officers and directors of ART and other entities, each of which has
business objectives similar to NRLP's. These directors and officers owe
fiduciary duties to such other entities and NRLP under applicable law.

In addition, NRLP also competes with other entities that are affiliates of BCM
or for which BCM acts as advisor, and which have investment objectives similar
to NRLP's and that may compete with NRLP in purchasing, selling, leasing and
financing real estate and real estate related investments. In resolving any
potential conflicts of interest which may arise, BCM has informed NRLP that it
intends to continue to exercise its best judgment as to what is fair and
reasonable under the circumstances in accordance with applicable law.

Special Considerations Relating to Investments in Real Estate

NRLP is subject to all of the risks incident to the ownership of real estate and
interests therein, many of which relate to the general illiquidity of real
estate investments. These risks include changes in general or local economic
conditions, changes in interest rates and the availability of permanent mortgage
financing which may render the sale or refinancing of a property difficult or
unattractive and which may make debt service burdensome, changes in real estate
and zoning laws, increases in real estate taxes, federal or local economic or
rent

6
<PAGE>

ITEM 1. BUSINESS (Continued)

Special Considerations Relating to Investments in Real Estate
(Continued)

controls, floods, earthquakes, hurricanes and other acts of God and other
factors beyond the control of management. The illiquidity of real estate
investments may also impair management's ability to respond promptly to changing
circumstances. Management believes that such risks are partially mitigated by
the diversification by geographic region and property type of NRLP's real estate
and mortgage notes receivable portfolios. However, to the extent that new
property investments or mortgage lending is concentrated in any particular
region or property type, the advantages of diversification may be mitigated.

ITEM 2. PROPERTIES

NRLP's principal offices are located at 10670 North Central Expressway, Suite
300, Dallas, Texas 75231 and are, in the opinion of management, suitable and
adequate for its present operations.

Details of NRLP's real estate and mortgage notes receivable portfolios at
December 31, 1999, are set forth in Schedules III and IV, respectively, to the
Consolidated Financial Statements included in ITEM 8. "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA." The discussions set forth below under the headings "Real
Estate" and "Mortgage Loans" provide certain summary information concerning
NRLP's real estate and mortgage notes receivable portfolios.

NRLP's real estate consists of properties purchased and properties obtained
through foreclosure of mortgage notes. The discussion set forth below under the
heading "Real Estate" provides certain summary information concerning NRLP's
real estate. NRLP owns 42 apartments, 13 commercial properties (seven office
buildings and six shopping centers) and four parcels of unimproved land in all
geographic regions of the United States, except for the Northeast, as shown more
specifically in the table under "Real Estate" below. NRLP also holds mortgage
notes receivable secured by real estate in all geographic regions of the United
States, except the Pacific and Mountain regions.

At December 31, 1999, two NRLP assets, the Centura Tower Office Building and the
ART note receivable, each exceeded 10% of NRLP's total assets. At December 31,
1999, 49% of NRLP's assets consisted of real estate and 44% consisted of
mortgage notes and interest receivable. The remaining 7% of its assets,
consisted of cash, cash equivalents and other assets. The percentage of NRLP's
assets invested in any one category is subject to change and no assurance can be
given that the future composition of NRLP's assets will approximate the
percentages listed above.

7
<PAGE>

ITEM 2. PROPERTIES (Continued)

Geographic Regions

NRLP has divided the United States into the following six geographic regions.

Northeast region comprised of the states of Connecticut, Delaware, Maryland,
Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island
and Vermont, and the District of Columbia. NRLP has no properties in this
region.

Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia. NRLP has 10
apartment complexes and 4 commercial properties in this region.

Southwest region comprised of the states of Arizona, Arkansas, Louisiana, New
Mexico, Oklahoma and Texas. NRLP has 18 apartment complexes and 2 commercial
properties in this region.

Midwest region comprised of the states of Illinois, Indiana, Iowa, Kansas,
Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South
Dakota, West Virginia and Wisconsin. NRLP has 20 apartment complexes and 1
commercial property in this region.

Mountain region comprised of the states of Colorado, Idaho, Montana, Nevada,
Utah and Wyoming. NRLP has 2 apartment complexes and 1 commercial property in
this region.

Pacific region comprised of the states of Alaska, California, Hawaii, Oregon and
Washington. NRLP has 3 apartment complexes and 3 commercial properties in this
region.

Excluded from above are four parcels of unimproved land, as described below.

Real Estate

At December 31, 1999, NRLP owned 59 properties located in 19 states, consisting
of 42 apartments with a total of 9,441 units, 13 commercial properties (seven
office buildings with an aggregate of 805,172 sq. ft. and six shopping centers
with an aggregate of 724,948 sq. ft.) and four parcels of unimproved land.

All but six of NRLP's properties are encumbered by mortgage debt. Generally, the
ability to make debt service payments under a mortgage loan will be dependent
upon the performance of the property, which is subject to the risks associated
with real estate investments, many of which are beyond the control of
management. In the event of default under one of these mortgages, the property
securing such mortgage would be subject to foreclosure. Most of NRLP's
borrowings are subject to substantial "balloon" payments at maturity.

Detailed information with respect to individual NRLP properties and associated
debt is set forth in Schedule III to the Consolidated Financial Statements
included in ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."

8
<PAGE>

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

Although NRLP has typically invested in developed real estate, it may also
invest in new construction or development either directly or in partnership with
nonaffiliated parties or affiliates. To the extent that it invests in
construction and development projects, NRLP will be subject to business risks,
such as cost overruns and construction delays, associated with such higher risk
projects.

In 1999, NRLP completed construction of Centura Tower, a 410,901 sq. ft. office
building in Farmers Branch, Texas, and at December 31, 1999, had under
construction Lake Shore Villas, a 312 unit apartment in Harris County, Texas.

The following table sets forth the percentages, by property type and geographic
region, of NRLP's owned real estate (excluding four land parcels, described
below) at December 31, 1999.

<TABLE>
<CAPTION>
Commercial
Region Apartments Properties
- ----------- ----------- -----------
<S> <C> <C>
Southeast.. 19.9% 23.0%
Southwest.. 40.2 40.3
Midwest.... 27.6 20.1
Mountain... 7.7 3.0
Pacific.... 4.6 13.6
----- -----
100.0% 100.0%
===== =====
</TABLE>

The foregoing table is based solely on the number of apartment units and amount
of commercial square footage owned and does not reflect the value of NRLP's
investment in each geographic region. See Schedule III to the Consolidated
Financial Statements included in ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA" for a detailed description of NRLP's real estate.

A summary of the activity in NRLP's owned real estate portfolio during 1999 is
as follows:

<TABLE>
<S> <C>
Owned properties at January 1, 1999............. 66
Property under construction..................... 1
Properties purchased............................ 3
Properties obtained through foreclosure......... 2
Properties obtained through conversion of note
receivable................................. 2
Properties sold................................. (15)
---
Owned properties at December 31, 1999........... 59
===
</TABLE>

Set forth below are NRLP's owned properties at December 31, 1999, and the
monthly rental rate for apartments and the average annual rental

9
<PAGE>

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

rate for commercial properties and the occupancy of both at December 31, 1999,
1998 and 1997:

<TABLE>
<CAPTION>
Rent Per Square Foot Occupancy %
-------------------- ----------------
Property Location Units/Square Footage 1999 1998 1997 1999 1998 1997
- -------------------- ----------------- -------------------------- ------ ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
Arlington Place Pasadena, TX 230 units/ 205,476 sq. ft. $ .65 $ .64 $ .63 98 98 95
Bent Tree Addison, TX 292 units/ 244,480 sq. ft. .71 .73 .70 96 93 96
Blackhawk Ft. Wayne, IN 209 units/ 190,520 sq. ft. .56 .57 .54 95 94 96
Bridgestone Friendswood, TX 76 units/ 65,519 sq. ft. .68 .67 .64 91 97 99
Candlelight Square Lenexa, KS 119 units/ 114,630 sq. ft. .60 .61 .58 95 96 94
Chalet I Topeka, KS 162 units/ 131,791 sq. ft. .64 .65 .62 95 97 96
Chalet II Topeka, KS 72 units/ 49,164 sq. ft. .68 .70 .68 95 91 93
Chateau Bellevue, NE 115 units/ 99,220 sq. ft. .69 .71 .69 96 94 95
Club Mar Sarasota, FL 248 units/ 230,180 sq. ft. .65 .65 .61 92 93 99
Confederate Point Jacksonville, FL 206 units/277,860 sq. ft. .58 .58 .46 94 93 91
Covered Bridge Gainesville, FL 176 units/ 171,416 sq. ft. .66 .64 .64 96 97 98
Fair Oaks Euless, TX 208 units/ 166,432 sq. ft. .66 .65 .61 96 93 96
Four Seasons Denver, CO 384 units/ 254,900 sq. ft. .91 .86 .80 95 96 98
Foxwood Memphis, TN 220 units/ 212,000 sq. ft. .55 .57 .54 81 90 94
Hidden Valley Grand Rapids, MI 176 units/ 260,970 sq. ft. .55 .54 .52 94 96 96
Kimberly Woods Tucson, AZ 279 units/ 249,678 sq. ft. .57 .59 .57 93 92 92
La Mirada Jacksonville, FL 320 units/ 341,400 sq. ft. .54 .52 .51 94 99 91
Lake Shore Villas Harris County, TX 312 units/ 259,176 sq. ft. ** ** ** ** ** **
Mallard Lake Greensboro, NC 336 units/ 295,560 sq. ft. .62 .64 .63 93 91 93
Nora Pines Indianapolis, IN 254 units/ 254,676 sq. ft. .60 .60 .59 93 95 92
Oak Tree Grandview, MO 189 units/ 160,591 sq. ft. .59 .60 .57 95 99 95
Pheasant Ridge Bellevue, NE 264 units/ 243,960 sq. ft. .60 .62 .61 94 89 93
Pines Little Rock, AR 257 units/ 221,981 sq. ft. .44 .42 .41 91 92 90
Place One Tulsa, OK 407 units/ 302,263 sq. ft. .59 .58 .57 94 93 92
Quail Point Huntsville, AL 184 units/ 202,602 sq. ft. .45 .44 .42 90 89 91
Regency Lincoln, NE 106 units/ 111,700 sq. ft. .64 .67 .63 88 87 98
Rockborough Denver, CO 345 units/ 249,723 sq. ft. .82 .80 .73 94 94 94
Shadowood Addison, TX 184 units/ 134,616 sq. ft. .76 .76 .74 95 94 96
Sherwood Glen Urbandale, IA 180 units/ 143,745 sq. ft. .76 .79 .77 93 90 94
Stonebridge Florissant, MO 100 units/ 140,576 sq. ft. .46 .46 .45 94 95 100
Summerwind Reseda, CA 172 units/ 114,711 sq. ft. .98 .93 .90 99 97 96
Sun Hollow El Paso, TX 216 units/ 156,000 sq. ft. .65 .66 .65 94 93 97
Timber Creek Omaha, NE 180 units/ 162,252 sq. ft. .70 .70 .66 93 97 95
Villa Del Mar Wichita, KS 162 units/ 128,004 sq. ft. .59 .60 .58 85 92 97
Villas Plano, TX 208 units/ 156,632 sq. ft. .81 .80 .77 96 94 98
Whispering Pines Canoga Park, CA 102 units/ 61,671 sq. ft. 1.08 1.05 1.01 93 93 94
Whispering Pines Topeka, KS 320 units/ 299,264 sq. ft. .52 .51 .49 94 95 95
Windtree I & II Reseda, CA 159 units/ 109,062 sq. ft. .97 .93 .90 98 95 96
Woodhollow San Antonio, TX 546 units/ 348,692 sq. ft. .64 .64 .63 76 82 92
Woodlake Carrollton, TX 256 units/ 210,208 sq. ft. .77 .77 .73 96 97 98
Woodsong II Smyrna, GA 190 units/ 207,460 sq. ft. .57 .56 .54 96 99 96
Woodstock Dallas, TX 320 units/ 222,112 sq. ft. .65 .63 .60 96 95 92

Office Buildings
56 Expressway Oklahoma City, OK 54,649 sq. ft. 7.92 9.53 8.64 78 91 94
</TABLE>

10
<PAGE>

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

<TABLE>
<CAPTION>
Rent Per Square Foot Occupancy %
-------------------- ----------------
Property Location Square Footage 1999 1998 1997 1999 1998 1997
- ------------------------------ ------------------ --------------- ------ ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office Buildings - Continued
Centura Tower Farmers Branch, TX 410,901 sq. ft. * * * * * *
Cooley Building Farmers Branch, TX 27,000 sq. ft. 9.00 * * 100 * *
Executive Court Memphis, TN 41,840 sq. ft. 13.22 10.64 9.79 100 96 96
Marina Playa Santa Clara, CA 124,322 sq. ft. 23.80 21.55 20.54 96 97 100
Melrose Business Park Oklahoma City, OK 124,200 sq. ft. 2.73 3.03 2.88 86 80 93
University Square Anchorage, AK 22,260 sq. ft. 13.26 13.83 14.07 97 81 100

Shopping Centers
Cross County Mall Mattoon, IL 307,064 sq. ft. 6.05 4.99 4.88 94 90 89
Cullman Cullman, AL 92,466 sq. ft. 3.98 3.91 3.87 98 98 97
Harbor Plaza Aurora, CO 45,863 sq. ft. 12.03 9.86 9.44 84 86 94
Katella Plaza Orange, CA 62,290 sq. ft. 6.18 9.79 9.20 66 71 71
Regency Point Jacksonville, FL 67,410 sq. ft. 12.51 12.36 12.07 99 91 83
Westwood Tallahassee, FL 149,855 sq. ft. 6.68 6.77 6.44 100 93 93

Land
Centura Holdings Farmers Branch, TX 6.4109 acres
Varner Road Riverside, CA 127.77 acres
Willow Springs Riverside, CA 1,485 acres
Woolley Farmers Branch, TX .4179 acres
</TABLE>

* Property was purchased in 1999.
** Property was under construction at December 31, 1999.

Occupancy presented here and throughout ITEM 2. is without reference to whether
leases in effect are at, below or above market rates.

NRLP owns a fee simple interest in each property except for the Katella Plaza
Shopping Center in Orange, California, in which NRLP owns a long-term leasehold
interest. Such leasehold interest permits some potential for capital
appreciation and marketability.

In January 1999, the 199 unit Olde Towne Apartments in Middleton, Ohio, was sold
for $4.6 million. GCLP received net cash of $4.4 million after the payment of
various closing costs, including a real estate brokerage commission of $136,000
to Carmel Realty, Inc. ("Carmel"), an affiliate of BCM. A gain of $2.7 million
was recognized on the sale.

In February 1999, the unencumbered 54,649 sq. ft. 56 Expressway Office Building
in Oklahoma City, Oklahoma, was financed in the amount of $1.7 million. NRLP
received net cash of $1.7 million after the payment of various closing costs,
including a mortgage brokerage and equity refinancing fee of $17,000 to BCM. The
mortgage bears interest at a variable rate, currently 9.25% per annum, requires
monthly payments of principal and interest of $15,000 and matures in February
2019.

Also in February 1999, the unencumbered 124,200 sq. ft. Melrose Business Park
Office Building in Oklahoma City, Oklahoma, was financed in the amount of
$900,000. NRLP received net cash of $870,000 after the

11
<PAGE>

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

payment of various closing costs, including a mortgage brokerage and equity
refinancing fee of $9,000 to BCM. The mortgage bears interest at a variable
rate, currently 9.25% per annum, requires monthly payments of principal and
interest of $8,000 and matures in February 2019.

Further in February 1999, the 225 unit Santa Fe Apartments in Kansas City,
Missouri, was sold for $4.6 million. GCLP received net cash of $4.3 million
after the payment of various closing costs, including a real estate brokerage
commission of $137,000 to Carmel. A gain of $1.3 million was recognized on the
sale.

In February 1999, the 480 unit Mesa Ridge Apartments in Mesa, Arizona, was sold
for $19.5 million. GCLP received net cash of $793,000 after the payment of
various closing costs, including a real estate brokerage commission of $585,000
to Carmel and remitted $17.8 million to the lender to hold in escrow pending a
substitution of collateral. In May 1999, the 259 unit Bavarian Woods Apartments
and the 149,855 sq. ft. Westwood Shopping Center were approved by the lender as
substitute collateral. GCLP received net cash of $7.8 million after paying off
a total of $7.2 million in mortgage debt secured by the Bavarian Woods
Apartments and Westwood Shopping Center, funding required escrows and the
payment of various closing costs, and paying down by $2.2 million the debt,
including a $133,000 prepayment penalty, formerly secured by the Mesa Ridge
Apartments. A gain of $12.3 million was recognized on the sale. NMC earned an
incentive disposition fee of $948,000 from the sale in accordance with the NRLP
partnership agreement.

In April 1999, the 166 unit Horizon East Apartments in Dallas, Texas, was sold
for $4.0 million. GCLP received net cash of $1.2 million after paying off $2.6
million in mortgage debt and the payment of various closing costs, including a
real estate brokerage commission of $79,000 to Carmel. A gain of $2.2 million
was recognized on the sale.

Also in April 1999, the 120 unit Lantern Ridge Apartments in Richmond, Virginia,
was sold for $3.4 million. GCLP received net cash of $880,000 after the payment
of various closing costs, including a real estate brokerage commission of
$103,000 to Carmel. The purchaser assumed the $2.4 million mortgage secured by
the property. A gain of $2.6 million was recognized on the sale.

In May 1999, the 27,000 sq. ft. Cooley Office Building in Farmers Branch, Texas,
was purchased for $3.5 million. NRLP paid $1.5 million in cash and obtained
mortgage financing of $2.0 million. The mortgage bears interest at a variable
rate, currently 9.5% per annum, requires monthly payments of principal and
interest of $17,875 and matures in May 2019. A real estate brokerage commission
of $35,000 was paid to Carmel.

Also in May 1999, NRLP obtained mortgage financing secured by the unencumbered
257 unit Pines Apartments in Little Rock, Arkansas, and by a $5.0 million note
receivable secured by second liens on two parcels of

12
<PAGE>

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

land, one in Denton County and the other in Tarrant County, Texas, in the amount
of $4.0 million. NRLP received net cash of $3.9 million after the payment of
various closing costs, including a mortgage brokerage and equity refinancing fee
of $40,000 to BCM. In September 1999, the mortgage debt was refinanced in the
amount of $3.1 million. NRLP used the net refinancing proceeds and cash of $1.1
million to pay off the $4.0 million of mortgage debt and pay various closing
costs, including a mortgage brokerage and equity refinancing fee of $31,000 to
BCM. The new mortgage bears interest at a variable rate, currently 8.4% per
annum, requires monthly payments of principal and interest of $24,552, matures
in April 2001 and is secured only by the Pines Apartments.

Further in May 1999, the remaining interest in a ground lease under the Westwood
Shopping Center was purchased by NRLP for $536,000 in cash. A real estate
brokerage commission of $15,000 was paid to Carmel.

In June 1999, the Lake Houston land, a 33.58 acre parcel of unimproved land in
Harris County, Texas, was purchased by NRLP for $2.5 million in cash. A real
estate brokerage commission of $75,000 was paid to Carmel. NRLP has obtained a
construction loan in the amount of $13.7 million to construct the 312 unit Lake
Shore Villas Apartments on the site. Construction costs are expected to
approximate $16.7 million. Construction began in July 1999 and is expected to be
completed in the third quarter of 2000. Through December 31, 1999, $5.4 million
has been expended on construction of the apartments, of which $4.2 million was
from the construction loan. The construction loan bears interest at a variable
rate, currently 8.73% per annum, and is payable monthly from the construction
loan and matures in June 2001.

Also in June 1999, the unencumbered 100 unit Stonebridge Apartments in
Florissant, Missouri, was financed in the amount of $3.0 million. NRLP received
net cash of $2.9 million after the payment of various closing costs, including a
mortgage brokerage and equity refinancing fee of $30,000 to BCM. The mortgage
bears interest at 8.33% per annum, requires monthly payments of principal and
interest of $23,814 and matures in July 2002.

Further in June 1999, the 368 unit Barcelona Apartments in Tampa, Florida, was
sold for $9.8 million. GCLP received net cash of $2.2 million after paying off
$7.0 million in mortgage debt and the payment of various closing costs,
including a real estate brokerage commission of $294,000 to Carmel. A gain of
$3.2 million was recognized on the sale.

In July 1999, the Stone Meadows land, a 13.5 acre parcel of unimproved land in
Harris County, Texas, was purchased from ART, at ART's carrying cost of $2.2
million. NRLP paid $1.2 million in cash and assumed the existing mortgage of
$974,000, which was paid off at its maturity in October 1999. NRLP acquired the
land as an apartment development site. After further review, management
determined not to develop apartments on

13
<PAGE>

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

the site. In December 1999, the land was sold for $1.8 million. NRLP received
net cash of $1.6 million after the payment of various closing costs. A loss of
$505,000 was recognized on the sale.

Further in July 1999, the unencumbered 76 unit Bridgestone Apartments in
Friendswood, Texas, was financed in the amount of $2.1 million. NRLP received
net cash of $2.0 million after the payment of various closing costs, including a
mortgage brokerage and equity refinancing fee of $21,000 to BCM. The mortgage
bears interest at 7.72% per annum, requires monthly payments of principal and
interest of $15,144 and matures in August 2009.

In August 1999, the 152 unit Country Place Apartments in Round Rock, Texas, was
sold for $6.0 million. NRLP received net cash of $1.3 million after the payment
of various closing costs, including a real estate brokerage commission of
$179,000 to Carmel. The purchaser assumed the $4.3 million mortgage secured by
the property. NMC received an incentive disposition fee of $201,000 from the
sale, in accordance with the NRLP partnership agreement. A gain of $3.9 million
was recognized on the sale.

Also in August 1999, the mortgage debt secured by the 102 unit Whispering Pines
Apartments in Canoga Park, California, was refinanced in the amount of $3.5
million. NRLP received net cash of $1.1 million after paying off $2.2 million
in mortgage debt, the funding of required escrows and the payment of various
closing costs, including a mortgage brokerage and equity refinancing fee of
$35,000 to BCM. The new mortgage bears interest at 7.84% per annum, requires
monthly payments of principal and interest of $24,931 and matures in September
2009.

Further in August 1999, the 588 unit Lake Nora Apartments and the 336 unit Fox
Club Apartments in Indianapolis, Indiana, were sold to a single buyer for a
total of $29.1 million. NRLP received net cash of $2.7 million, after paying
off $24.5 million in mortgage debt, including an $889,000 prepayment penalty,
and the payment of various closing costs, including a real estate brokerage
commission of $873,000 to Carmel. Gains totaling $18.0 million were recognized
on the sales.

As discussed in "Mortgage Loans" below, in August 1999, NRLP exercised its
option in the loan agreement with Centura Tower, Ltd. ("Centura"), which owns
the 410,901 sq. ft. Centura Tower Office Building in Farmers Branch, Texas, and
obtained a combined 80% general and limited partnership interest in Centura in
exchange for a $24.1 million capital contribution, through conversion of a
portion of its note receivable to an equity interest. In December 1999, the
construction debt secured by the Centura Tower Office Building was refinanced
with a new construction loan in the amount of $28.8 million, of which $21.7
million was funded initially. NRLP received net cash of $8.6 million after
paying off $11.0 million in construction debt, the funding of required escrows
and the payment of various closing costs, including a mortgage brokerage and
equity refinancing fee of $288,000 to BCM. The new mortgage bears

14
<PAGE>

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

interest at a variable rate, currently 9.75% per annum, requires monthly
payments of interest only and matures in December 2000. Through February 2000,
the lender has advanced an additional $2.6 million under the construction loan.
In August 1998, a $6.0 million loan was funded to Centura Holdings, LLC, a
subsidiary of Centura. The loan was secured by 6.4109 acres of land in Farmers
Branch, Texas, adjacent to the Centura Tower Office Building. In November 1999,
the land was transferred to NLP/CH, Ltd., a partnership in which NRLP has a
combined 80% general and limited partnership interest. The borrower holds the
remaining 20% limited partnership interest. NLP/CH, Ltd. is consolidated for
financial statement purposes.

In September 1999, the 409 unit Oakhollow Apartments and the 408 unit Windridge
Apartments in Austin, Texas, were sold to a single buyer for a total of $35.5
million. NRLP received net cash of $7.8 million, after paying off $22.2 million
in mortgage debt, including a $912,000 prepayment penalty, and the payment of
various closing costs, including a real estate brokerage commission of $1.1
million paid to Carmel. In conjunction with the sale, NRLP provided $2.1
million in purchase money financing as discussed in "Mortgage Loans," below.
NMC earned an incentive disposition fee of $239,000 from the sale in accordance
with the NRLP partnership agreement. A gain of $27.7 million was recognized on
the sale.

Also in September 1999, the unencumbered 209 unit Blackhawk Apartments in Ft.
Wayne, Indiana, was financed in the amount of $4.1 million. NRLP received net
cash of $4.0 million after the payment of various closing costs, including a
mortgage brokerage and equity refinancing fee of $41,000 to BCM. The mortgage
bears interest at a variable rate, currently 8.38% per annum, requires monthly
payments of principal and interest of $32,923 and matures in April 2001.

In October 1999, the 838 unit Tanglewood Apartments in Arlington Heights,
Illinois, was sold for $41.0 million. NRLP received net cash of $8.4 million,
after paying off $28.8 million in mortgage debt, including a $1.2 million
prepayment penalty, and the payment of various closing costs, including a real
estate brokerage commission of $1.1 million to Regis. NMC earned an incentive
disposition fee of $706,000 from the sale in accordance with the NRLP
partnership agreement. A gain of $26.3 million was recognized on the sale.

In November 1999, the 259 unit Bavarian Woods Apartments in Middletown, Ohio,
was sold for $9.0 million. NRLP received net cash of $1.5 million, after paying
off $7.0 million in mortgage debt, including an $887,000 prepayment penalty, and
the payment of various closing costs, including a real estate brokerage
commission of $270,000 to Regis. A gain of $4.5 million was recognized on the
sale.

Also in November 1999, as discussed in "Mortgage Loans" below, NRLP obtained the
Varner Road land, a 127.77 acre parcel of unimproved land in Riverside County,
California, by accepting a deed in lieu of foreclosure.

15
<PAGE>

ITEM 2. PROPERTIES (Continued)

Real Estate (Continued)

In December 1999, the 280 unit Manchester Commons Apartments in Manchester,
Missouri, was sold for $13.4 million. NRLP received net cash of $2.0 million,
after paying off $10.6 million in mortgage debt, including a $326,000 prepayment
penalty, and the payment of various closing costs, including a real estate
brokerage commission of $401,000 to Regis. NMC earned an incentive disposition
fee of $100,000 from the sale in accordance with the NRLP partnership agreement.
A gain of $10.2 million was recognized on the sale.

Also in December 1999, the Woolley land, a .4179 acre parcel of unimproved land
adjacent to the Centura Tower Office Building in Farmers Branch, Texas, was
purchased by NRLP for $205,000 in cash. A real estate brokerage commission of
$6,000 was paid to Regis. The land is.

Further in December 1999, as discussed in "Mortgage Loans" below, NRLP obtained
the Willow Springs land, a 1,485 acre parcel of unimproved land in Riverside
County, California, by accepting a deed in lieu of foreclosure.

In March 2000, the 172 unit Summerwind Apartments in Reseda, California, was
sold for $9.0 million. NRLP received net cash of $3.1 million after the payment
of various closing costs, including a real estate brokerage commission of
$270,000 to Regis. The purchaser assumed the $5.6 million mortgage secured by
the property. A gain will be recognized on the sale.

Also in March 2000, the 159 unit Windtree Apartments also in Reseda, California,
was sold for $8.4 million. NRLP received net cash of $2.9 million after the
payment of various closing costs, including a real estate brokerage commission
of $250,500 to Regis. The purchaser assumed the $5.1 million mortgage secured
by the property. A gain will be recognized on the sale.

Mortgage Loans

In addition to real estate, a substantial portion of NRLP's assets are invested
in mortgage notes receivable, secured by income-producing real estate,
unimproved land and partnership interests. Management expects that the
percentage of NRLP's assets invested in mortgage loans will decline as it does
not intend to actively seek to fund or acquire new mortgage loans in 2000.
However, NRLP may originate mortgage loans in conjunction with providing
purchase money financing of a property sale. Management intends to service and
hold for investment the mortgage notes currently in NRLP's portfolio. NRLP's
mortgage notes consist of first and junior mortgage loans secured by real estate
and other secured and unsecured loans.

Types of Mortgage Activity. NRLP may originate its own mortgage loans. NRLP is
not considering acquiring existing mortgage notes. BCM, in its capacity as a
mortgage servicer, services NRLP's mortgage notes. NRLP's investment policy is
described in ITEM 1. "BUSINESS--Business Plan and Investment Policy".

16
<PAGE>

ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

Types of Properties Subject to Mortgages. The properties securing NRLP's
mortgage notes receivable portfolio at December 31, 1999, consisted of
apartments, an office building, a ranch, unimproved land, stock, partnership
interests, personal guarantees and an interest in an insurance company.

At December 31, 1999, NRLP's mortgage notes had an aggregate face amount of
$166.8 million and an aggregate net carrying value of $166.2 million, net of
allowance for estimated losses of $1.9 million.

Eleven of the notes in NRLP's mortgage notes receivable portfolio at December
31, 1999, were secured by unimproved land and other security as discussed below.
The ART note, with a carrying value of $124.4 million, is partially secured by
five apartments and an office building, located in the Southeast, Southwest and
Midwest regions, one note is secured by a ranch in the Southwest region and
three notes are unsecured. See Schedule IV to the Consolidated Financial
Statements included at ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" for
further details of NRLP's mortgage notes receivable portfolio.

A summary of the activity in NRLP's mortgage notes receivable portfolio during
1999 is as follows:

<TABLE>
<S> <C>
Mortgage notes receivable at January 1, 1999.... 24
Loans funded.................................... 5
Loans collected in full......................... (8)
Loan sold....................................... (1)
Loans converted to property interest............ (2)
Loans foreclosed................................ (2)
--
Mortgage notes receivable at December 31, 1999.. 16
==
</TABLE>

First Mortgage Loans. These loans can provide for level periodic payments of
principal and interest, may involve interest only payments or for all interest
and a "balloon" principal payment at maturity. With respect to first mortgage
loans, it is NRLP's general policy to require that the borrower provide a
mortgagee's title policy or an acceptable legal opinion of title as to the
validity and the priority of the mortgage lien over all other obligations,
except liens arising from unpaid property taxes and other exceptions normally
allowed by first mortgage lenders in the relevant area.

In May 1999, a mortgage note receivable with a principal balance of $1.5 million
was collected in full. The cash received was applied to pay down NRLP debt
partially secured by the note.

In December 1999, NRLP obtained financing in the amount of $5.0 million secured
by five of its notes receivable with an aggregate principal balance of $9.6
million. NRLP received net cash of $4.9 million after the payment of various
closing costs including a mortgage brokerage and

17
<PAGE>

ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

equity refinancing fee of $50,000 to BCM. The financing bears interest at 14.0%
per annum, requires monthly payments of interest only and matures in December
2000.

During 1998 and 1999, a total of $31.0 million was funded of a $52.5 million
loan commitment to Centura. The loan was secured by 2.244 acres of land and an
office building under construction in Farmers Branch, Texas. In August 1999,
NRLP exercised its option contained in the loan agreement, and obtained a
combined 80.0% general and limited partnership interest in Centura in exchange
for a $24.1 million capital contribution through conversion of a portion of its
note receivable to an equity interest. The $8.3 million balance of the note
continued as a loan to Centura. Centura is consolidated for financial purposes
and the loan balance is eliminated in consolidation.

During 1998 and 1999, $2.1 million of a $2.2 million loan commitment was funded
to Varner Road Partners, L.L.C. The loan was secured by a 129.77 acre parcel of
unimproved land in Riverside County, California, and a pledge of the membership
interests of the borrower. The loan matured in November 1999. Principal and
accrued interest were not paid at maturity and the borrower deeded the property
to NRLP in lieu of foreclosure. No loss was incurred, as the fair market value
of the property, less estimated costs of sale, exceeded the carrying value of
the note receivable.

During the first and second quarters of 1998, a $356,000 loan was funded to
Ellis Development Company, Inc. The loan is secured by a 4.5 acre parcel of land
in Abilene, Texas. The loan bears interest at 14.0% per annum and had an
original maturity of April 1999. All principal and interest were due at
maturity. In August 1998, the loan was modified and extended, increasing the
loan commitment to $946,000, of which $942,000 has been funded and the maturity
date was extended to August 1999. In exchange for the modification and extension
the borrower pledged additional collateral consisting of the personal guarantees
of the principal owners of the borrower and a collateral assignment of a
$220,000 note receivable. In August 1999, the note was further extended to
August 2000. All other terms of the loan remained unchanged.

In June 1998, a $2.4 million loan was funded to Cuchara Partners, Ltd. and Ski
Rio Partners, Ltd., affiliates of JNC Enterprises, Inc. ("JNC"). The loan is
secured by (1) a first lien on approximately 450 acres of land in Huerfano
County, Colorado, known as Cuchara Valley Mountain Ski Resort; (2) assignment of
a $2.0 million promissory note which is secured by approximately 2,623 acres of
land in Taos County, New Mexico, known as Ski Rio Resort; and (3) a pledge of
all related partnership interests. The loan bears interest at 16.0% per annum
and has an extended maturity of March 2000. All principal and interest are due
at maturity. In July 1998, an additional $1.8 million was funded increasing the
loan balance to $4.2 million. In the fourth quarter of 1998, $109,000 was
received on the sale of 11 parcels of collateral property in Taos, New Mexico.
In August 1999, a paydown of $2.3 million was

18
<PAGE>

ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

received. In September 1999, a paydown of $1.0 million was received. The loan
had a principal balance of $1.6 million at December 31, 1999, and is cross-
collateralized with other JNC loans funded by NRLP.

Also in June 1998, a $365,000 loan was funded to RB Land & Cattle, L.L.C. The
loan was secured by 7,200 acres of unimproved land near Crowell, Texas, and the
personal guarantee of the owner and manager of the borrower. The loan matured in
December 1998. All principal and interest were due at maturity. The loan,
including accrued but unpaid interest, was collected in full in January 2000.

In March 1998, NRLP ceased receiving the required payments on a $3.0 million
note receivable secured by an office building in Dallas, Texas. In October 1998,
NRLP began foreclosure proceedings. In March 1999, payment in full was received,
including accrued but unpaid interest.

In 1997 and 1998, a $3.8 million loan was funded to Stratford & Graham
Developers, L.L.C. In 1999, an additional $305,000 was funded increasing the
loan balance to $4.1 million. The loan was secured by 1,485 acres of unimproved
land in Riverside County, California. The loan matured in June 1999. The loan
was not paid at maturity. The borrower deeded the collateral property to NRLP
in December 1999. No loss was incurred, as the fair market value of the
property, less estimated costs of sale, exceeded the carrying value of the note
receivable.

Wraparound Mortgage Loans. A wraparound mortgage loan, sometimes called an
all-inclusive loan, is a mortgage loan having an original principal amount equal
to the outstanding balance under the prior existing mortgage loan(s) plus the
amount actually advanced under the wraparound mortgage loan. Wraparound mortgage
loans may provide for full, partial or no amortization of principal.

At December 31, 1998, NRLP's one wraparound mortgage note receivable with a
principal balance of $5.4 million and a net carrying value of $489,000 was in
default. NRLP had been vigorously pursuing its rights regarding the loan to no
avail. In December 1999, NRLP sold the note to BCM at its carrying value,
retaining the right to receive any amounts collected by BCM in excess of the
amount it paid for the note.

Junior Mortgage Loans. Junior mortgage loans are loans secured by mortgages
that are subordinate to one or more prior liens either on the fee or a leasehold
interest in real estate. Recourse on such loans ordinarily includes the real
estate on which the loan is made, other collateral and personal guarantees of
the borrower.

In January 1999, a mortgage note receivable with a principal balance of $350,000
was collected in full.

In August 1999, a $2.6 million loan was funded to JNC. The loan was subsequently
split into two pieces. The loans are secured by second liens on a 3.5 acre and a
1.2561 acre parcel of land in Dallas, Texas,

19
<PAGE>

ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

the guarantee of the borrower and the personal guarantees of its shareholders.
The loans bear interest at 16.0% per annum and matured in February 2000. All
principal and interest were due at maturity. JNC used $2.3 million of the loan
proceeds to paydown the Cuchara $4.2 million note receivable. In March 2000,
the $2.0 million loan secured by the 3.5 acre land parcel was collected in full,
including accrued but unpaid interest. Negotiations are in process to extend
the remaining loan, which is cross-collateralized with the other JNC loans
funded by NRLP.

In October 1998, three loans to JNC or affiliated entities were funded. The
first JNC loan of $1.0 million was secured by a second lien on 3.5 acres of land
in Dallas, Texas, the guarantee of the borrower and the personal guarantees of
its shareholders. This loan was collected in full in July 1999, prior to its
maturity. The second loan, also $1.0 million, was secured by a second lien on
2.92 acres of land in Dallas, Texas, the guarantee of the borrower and the
personal guarantees of its shareholders. This loan was collected in full in
March 1999, also prior to its maturity. The third loan, in the amount of $2.1
million, was to a JNC affiliate, Frisco Panther Partners, Ltd. The loan is
secured by a second lien on 408.23 acres of land in Frisco, Texas, the guarantee
of the borrower and the personal guarantees of its partners. In January 1999,
$820,000 was received as a paydown on this loan. The loan originally matured in
October 1999. At maturity, the loan was extended to March 2000, in exchange for
an increase in the interest rate to 16.0% per annum. All principal and interest
are due at maturity. This loan is cross-collateralized with the other JNC loans
funded by NRLP.

In December 1998, $3.3 million of a $5.0 million loan commitment was funded to
JNC. In January 1999, a $1.3 million paydown was received on the loan, and
subsequently an additional $3.0 million was funded, increasing the loan balance
to $5.0 million. The loan is secured by a second lien on 1,791 acres of land in
Denton County, Texas and, until July 1999, a second lien on 220 acres of land in
Tarrant County, Texas. In July 1999, the second lien on the 220 acres of land
was released and a second lien on 91 acres of land in Collin County, Texas was
substituted. At maturity, in December 1999, the loan was extended to March 2000,
in exchange for an increase in the interest rate to 16.0% per annum. All
principal and interest are due at maturity. This loan is cross-collateralized
with the other JNC loans funded by NRLP.

Other. In January and July 1999, a $1.7 million note receivable was collected
in full, including a $400,000 participation fee.

In September 1999, in conjunction with the sale of the 409 unit Oakhollow
Apartments and the 408 unit Windridge Apartments in Austin, Texas, NRLP provided
$2.1 million in purchase money financing secured by limited partnership
interests in two limited partnerships owned by the buyer. The financing bears
interest at 16.0% per annum, requires monthly payments of interest only at 6.0%
beginning in February 2000 and a $200,000 principal paydown in December 1999,
which was not received,

20
<PAGE>

ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

and matures in August 2000. NRLP had the option to obtain the buyer's general
and limited partnership interest in the partnerships in full satisfaction of the
financing. In March 2000, NRLP agreed to forbear foreclosing on the collateral
and release one of the partnership interests, in exchange for payment of
$250,000 and executed deeds of trusts on certain properties, which was received.
In addition, the borrower is to make a $1.1 million payment in April 2000. Upon
receipt of the April 2000 payment, NRLP will return the deeds of trust and
terminate the option agreement. The borrower will execute a replacement
promissory note for the remaining note balance, estimated to be $1.0 million,
which will be unsecured, non-interest bearing and mature in April 2003.

In December 1999, a note with a principal balance of $1.2 million and secured by
a pledge of a partnership interest in a partnership which owns real estate in
Addison, Texas, matured. The maturity date was extended to April 2000, in
exchange for an increase in the interest rate to 14.0% per annum. All other
terms remained the same.

In August 1998, a $3.7 million loan was funded to JNC. The loan was secured by a
contract to purchase 387 acres of land in Collin County, Texas, the guarantee of
the borrower and the personal guarantees of its shareholders. The loan bore
interest at 12.0% per annum and matured in February 1999. All principal and
interest were due at maturity. In January 1999, ART purchased the contract from
JNC and acquired the land. In connection with the purchase, an additional $6.0
million of GCLP's loan commitment to ART was advanced. A portion of the funds
were used to payoff the $3.7 million loan, including accrued but unpaid
interest, paydown by $1.3 million another JNC loan and paydown by $820,000 the
Frisco Panther Partners Ltd. loan, as discussed above. See "Related Party".

Also in August 1998, a $635,000 loan was funded to La Quinta Partners, LLC. The
loan was secured by interest bearing accounts prior to being used as escrow
deposits toward the purchase of a total of 956 acres of land in La Quinta,
California, and the personal guarantee of the manager of the borrower. The loan
matured in November 1998. All principal and interest were due at maturity. In
November and December 1998, $250,000 was received in principal paydowns. In the
second quarter of 1999, the loan was modified, increasing the interest rate to
15.0% per annum and extending the maturity date to November 1999. Accrued but
unpaid interest was added to the principal balance, increasing it by $42,000 to
$402,000. In the fourth quarter of 1999, an additional $2,000 was funded
increasing the loan balance to $404,000. In March 2000, $25,000 in interest was
collected and the loan's maturity was extended to April 2000.

21
<PAGE>

ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

Texas and by a second lien mortgage on a ranch in Henderson County, Texas. The
loan bore interest at 12.0% per annum, required monthly payments of interest
only and had an extended maturity date of September 1999. In November 1999, the
note was collected in full including accrued but unpaid interest.

Related Party. In 1998 and 1999, GCLP funded $124.4 million of a $125.0
million loan commitment to ART. The loan is secured by second liens on six ART
properties in Minnesota, Mississippi and Texas, the stock of ART Holdings, Inc.,
a wholly-owned subsidiary of ART that owns 3,349,535 NRLP limited partner units,
by the stock of NMC, the general partner of NRLP, a pledge of 678,475 NRLP
limited partner units owned by BCM and a pledge of 283,034 NRLP limited partner
units owned by ART. The loan bears interest at 12.0% per annum, requires monthly
payments of interest only and matures in November 2003. In February and October
1999, a total of $1.1 million was received in paydowns on the loan.

In December 1998, in connection with the Moorman litigation settlement, NMC, a
wholly-owned subsidiary of ART, and the general partner of NRLP, assumed
responsibility for repayment to NRLP of the $12.2 million paid by NRLP to the
Moorman Class Members and legal counsel. The loan bears interest at a variable
rate, currently 8.0% per annum, and requires annual payments of accrued interest
plus principal payments of $500,000 in each of the first three years, $750,000
in each of the next three years, $1.0 million in each of the next three years,
with payment in full of the remaining balance in the tenth year. The note is
guaranteed by ART. The note matures upon the earlier of the liquidation or
dissolution of NRLP, NMC ceasing to be general partner or ten years from March
31, 1999, the date of the first cash distribution to the Moorman Class Members.

Of the Partnership's $168.1 million of notes receivable, approximately $138.0
million, including accrued interest, is due from ART. At the effective date of
the pending merger of ART and the Partnership, this receivable, and any unpaid
interest, will be eliminated without payment. See ITEM 1. "BUSINESS-General."

In February 1999, a $5.0 million unsecured loan was funded by GCLP to One Realco
Corporation, formerly Davister Corp., which at December 31, 1999, owned
approximately 15.8% of the outstanding shares of ART's common stock. The loan
bears interest at 12.0% per annum and matured in February 2000. All principal
and interest were due at maturity. The loan is guaranteed by BCM. In March
2000, all accrued but unpaid interest was collected and the loan was extended to
February 2002. All other terms of the loan remained unchanged.

In 1998, a loan commitment of $1.8 million was funded to Warwick of Summit, Inc.
("Warwick"), of which $619,000 was used to repay a Warwick affiliate's loan from
NRLP. The loan was secured by a second lien on a shopping center in Rhode
Island, by 100% of the stock of the borrower and by the personal guarantee of
the principal shareholder of the

22
<PAGE>

ITEM 2. PROPERTIES (Continued)

Mortgage Loans (Continued)

borrower. The loan bears interest at 14.0% per annum and has an extended
maturity of December 2000. All principal and interest are due at maturity. In
December 1999, the borrower sold the collateral property. NRLP received $810,000
of the net proceeds of the sale, of which $386,000 was applied to accrued
interest and the remaining $424,000 was applied to principal. NRLP is to
receive escrowed monies in 2000. Through February 2000, $50,000 had been
received. The loan is currently unsecured. In October 1999, Richard D. Morgan,
a Warwick shareholder, was elected a Director of NMC, the general partner of
NRLP.

Beginning in 1997 and through January 1999, a $1.6 million loan commitment was
funded to Bordeaux Investments Two, L.L.C. ("Bordeaux"). The loan is secured by
(1) a 100% membership interest in Bordeaux, which owns a shopping center in
Oklahoma City, Oklahoma; (2) 100% of the stock of Bordeaux Investments One,
Inc., which owns 6.5 acres of unimproved land in Oklahoma City, Oklahoma; and
(3) the personal guarantees of the Bordeaux members. The loan bears interest at
14.0% per annum. Until November 1998, the loan required monthly payments of
interest only at 12.0% per annum, with the deferred interest payable at maturity
in January 1999. In November 1998, the loan was modified to allow payments based
on monthly cash flow of the collateral property and the maturity date was
extended to December 1999. In the second quarter of 1999, the loan was again
modified, increasing the loan commitment to $2.1 million and an additional
$33,000 was funded. In the third quarter of 1999, an additional $213,000 was
funded. The property has had no cash flow, therefore, NRLP ceased accruing
interest on the loan in the second quarter of 1999. In October 1999, a $724,000
paydown was received, which was applied first to accrued interest due of
$261,000 then to principal, reducing the loan balance to $1.4 million.
Negotiations are in process to further modify and extend the loan. In October
1999, Richard D. Morgan, a Bordeaux member, was elected a Director of NMC, the
general partner of NRLP.

In October 1999, a $4.7 million loan was funded by GCLP to Realty Advisors,
Inc., the corporate parent of BCM. The loan is secured by a pledge of 100% of
Realty Advisors, Inc.'s interest in an insurance company. The loan bears
interest at 10.25% per annum and matures in November 2001. All principal and
interest are due at maturity.

Investment in Marketable Equity Securities of ART

At December 31, 1999, NRLP owned 195,732 shares of ART's common stock,
approximately 1.9% of ART's outstanding shares. The officers of NMC, NRLP's
general partner, are also officers of ART. Karl L. Blaha, President and Director
of NMC also serves as President and director of ART and Collene C. Currie a
Director of NMC also serves as a director of ART. See ITEM 12. "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." As of March 3, 2000, the
market value of the ART common stock was $3.3 million. As of March 3, 2000, ART
and BCM owned 3,501,569 and 786,975 units, respectively, of NRLP's limited
partner units, approximately 55.4% and 12.4% of the units then outstanding.

23
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

Moorman Settlement

NRLP entered into a settlement agreement, dated May 9, 1990, relating to the
action entitled Moorman, et al. v. Southmark Corporation, et al. Such action was
filed on September 2, 1987, in the Superior Court of the State of California,
County of San Mateo. NRLP agreed to settle such action pursuant to the terms of
a written agreement (the "Moorman Settlement Agreement").

The Moorman Settlement Agreement provided for a plan (the "Moorman Settlement
Plan") consisting of, among other things, the following: (1) the appointment and
operation of a committee (the "Oversight Committee") to oversee the
implementation of the Moorman Settlement Plan, and (2) the establishment of
specified annually increasing targets (each a "Target") for each of the five
years through May 1995, relating to the price of the units of limited partner
interest.

If the Targets were not met for any two successive years of the Moorman
Settlement Plan or for the final year of the Moorman Settlement Plan, Syntek
Asset Management, L.P. ("SAMLP") was required to withdraw as general partner
effective at the time a successor general partner was elected. The Targets for
the first and second anniversary dates were not met. Since the Targets were not
met for two successive years, the Moorman Settlement Agreement required that
SAMLP resign as general partner, effective upon the election and qualification
of its successor. On July 8, 1992, SAMLP notified the Oversight Committee of the
failure to meet the Target for two successive years.

Upon, among other things, the withdrawal of SAMLP as general partner and the due
election and taking office of a successor, the Moorman Settlement Plan would
terminate. Withdrawal of SAMLP as general partner pursuant to the Moorman
Settlement Agreement required unitholders to elect a successor general partner
by majority vote.

The Moorman Settlement Agreement provided that the withdrawal of SAMLP as
general partner would require NRLP to acquire SAMLP's interest in NRLP (the
"Redeemable General Partner Interest") at its then fair value, and to pay
certain fees and other compensation, as provided in NRLP's partnership agreement
and the Moorman Settlement Agreement. Under the Moorman Settlement Agreement,
payment for such Redeemable General Partner Interest, fees and other
compensation could have, at the Oversight Committee's option, been paid over a
three year period pursuant to a secured promissory note bearing interest at a
financial institution's prime rate and containing commercially reasonable terms
and collateral. Under the Moorman Settlement Plan, the purchase price for
Redeemable General Partner Interest would have been calculated as of the time
SAMLP withdrew as general partner under NRLP's partnership documents.

24
<PAGE>

ITEM 3. LEGAL PROCEEDINGS (Continued)

Moorman Settlement (Continued)

successor general partner of NRLP, for the distribution of $11.4 million to the
Moorman Class Members and for the resolution of all related matters under the
Moorman Settlement Agreement. The Cash Distribution Agreement was submitted to
the Court on July 23, 1998. On August 4, 1998, the Court entered an order
granting preliminary approval of the Cash Distribution Agreement. On September
9, 1998, a notice was mailed to the Moorman Class Members describing the Cash
Distribution Agreement. On October 16, 1998, a hearing was held to consider any
objections to the Cash Distribution Agreement. On October 23, 1998, the Court
entered an order granting final approval of the Cash Distribution Agreement. The
Court also entered orders requiring NRLP to pay $404,000 in attorney's fees to
Joseph B. Moorman's legal counsel, $30,000 to Joseph B. Moorman and $404,000 in
attorney's fees to Robert A. McNeil's legal counsel.

Pursuant to the order, in November 1998, $11.4 million was deposited by NRLP
into an escrow account and then transferred to the control of an independent
settlement administrator. The distribution of the cash was made to the Moorman
Class Members pro rata based upon the number of units originally issued to each
Moorman Class Member upon the formation of NRLP in 1987. On March 10, 1999, the
Court entered an order providing for the initial distribution of the cash not
later than March 31, 1999. The distribution of cash was under the control of the
independent settlement administrator.

The proposal to elect NMC as the successor general partner was submitted to the
unitholders of NRLP for a vote at a special meeting of unitholders held on
December 18, 1998. All units of NRLP owned by affiliates of SAMLP (approximately
61.8% of the outstanding units of NRLP as of the November 27, 1998 record date)
were voted pro rata with the vote of the other limited partners. NMC was elected
by a majority vote of the unitholders. The Moorman Settlement Plan remained in
effect until December 18, 1998, when SAMLP resigned as general partner and NMC
was elected successor general partner and took office.

Under the Cash Distribution Agreement, SAMLP waived its right under the Moorman
Settlement Agreement to receive any payment from NRLP for its Redeemable General
Partner Interest and fees it was entitled to receive upon the election of a
successor general partner. In addition, pursuant to the Cash Distribution
Agreement, NRLP partnership agreement was amended to provide that, upon
voluntary resignation of the general partner, the resigning general partner
shall not be entitled to the repurchase of its general partner interest under
Paragraph 17.9 of the NRLP partnership agreement.

Under the Cash Distribution Agreement, NMC assumed liability for SAMLP's note
for its capital contribution to NRLP. In addition, NMC assumed liability for a
note which requires the repayment to NRLP of the $11.4 million paid by NRLP
under the Cash Distribution Agreement plus the $808,000 in court ordered
attorney's fees and the $30,000 paid to Joseph B. Moorman. This note requires
repayment over a ten-year period, bears

25
<PAGE>

ITEM 3. LEGAL PROCEEDINGS (Continued)

Moorman Settlement (Continued)

interest at a variable rate, currently 8.0% per annum, and is guaranteed by ART,
which is the parent of NMC and which owns approximately 55.4% of the NRLP's
outstanding units.

Other. NRLP is involved in various lawsuits arising in the ordinary course of
business. Management of NRLP is of the opinion that the outcome of these
lawsuits would have no material impact on NRLP's financial condition.

NOTE 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.
-----------------------

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNER INTEREST
AND RELATED SECURITY HOLDER MATTERS

NRLP's units of limited partner interest are traded on the American Stock
Exchange ("AMEX") using the symbol "NLP".

The following table sets forth high and low sale prices of NRLP's units of
limited partner interest as reported by the AMEX:

<TABLE>
<CAPTION>
Quarter Ended High Low
- ---------------------------------------- -------- --------
<S> <C> <C>
March 31, 2000 (through March 3, 2000).. $ 17 1/4 $14 1/4

March 31, 1999.......................... 23 3/4 21 3/4
June 30, 1999........................... 22 7/8 21 3/4
September 30, 1999...................... 22 1/2 20 3/4
December 31, 1999....................... 21 3/8 17 7/8

March 31, 1998.......................... 24 1/8 19 3/8
June 30, 1998........................... 20 1/16 18 1/2
September 30, 1998...................... 22 19
December 31, 1998....................... 23 19 3/4
</TABLE>

As of March 3, 2000, the closing price of NRLP's units of limited partner
interest on the AMEX was $16.13 per unit.

As of March 3, 2000, NRLP's units of limited partner interest were held by 4,767
holders of record.

NRLP has paid quarterly distributions since the fourth quarter of 1993. During
1999, NRLP declared quarterly distributions of $.125 per unit, a total of $.50
per unit or $3.2 million.

26
<PAGE>

ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNER INTEREST
AND RELATED SECURITY HOLDER MATTERS (Continued)

Distributions declared by NRLP in 1999 and 1998:

<TABLE>
<CAPTION>
Date Declared Record Date Payable Date Amount
- -------------------- ------------------ ------------------ ------
<S> <C> <C> <C>
March 4, 1999 March 22, 1999 April 5, 1999 $.125
June 2, 1999 June 14, 1999 June 30, 1999 .125
September 9, 1999 September 20, 1999 October 5, 1999 .125
November 22, 1999 December 15, 1999 January 5, 2000 .125

March 2, 1998 March 13, 1998 March 31, 1998 $.125
May 27, 1998 June 4, 1998 June 19, 1998 .125
September 15, 1998 September 25, 1998 September 30, 1998 .125
December 2, 1998 December 15, 1998 January 4, 1999 .125
</TABLE>

In March 1999, the Board of Directors of NMC, NRLP's general partner affirmed
NRLP's unit repurchase program which was established in 1987. The Board also
established a new authorization for the repurchase of up to 500,000 additional
units in open-market transactions. Through December 31, 1999, NRLP had
repurchased a total of 402,960 units under the prior authorization at a total
cost of $5.1 million. NRLP has not purchased any units under the repurchase
programs since January 1993.

27
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(dollars in thousands, except per unit)

EARNINGS DATA
Revenues............................. $ 104,654 $ 113,834 $ 117,365 $ 112,681 $ 110,892
Expenses
Interest............................ 27,217 39,685 34,189 33,759 34,956
Property operations................. 50,101 62,736 64,620 63,136 63,320
General and administrative.......... 6,723 6,820 7,856 5,975 6,252
Depreciation........................ 7,708 9,691 10,338 10,247 10,268
General partner fees................ 2,509 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total expenses..................... 94,258 118,932 117,003 113,117 114,796

Income (loss) from operations....... 10,396 (5,098) 362 (436) (3,904)
Gain on sale of real estate......... 114,443 52,589 8,356 61 7,701
---------- ---------- ---------- ---------- ----------
Net income (loss).................. $ 124,839 $ 47,491 $ 8,718 $ (375) $ 3,797
========== ========== ========== ========== ==========

PER UNIT DATA
Net income (loss).................... $19.36 $ 7.36 $ 1.35 $ (.06) $ .58
========== ========== ========== ========== ==========

Distributions per unit............... $.50 $ .50 $ 1.90 $ 1.10 $ 1.28

Weighted average units of limited
partner interest used in computing
earnings per unit................... 6,321,531 6,321,425 6,327,418 6,387,270 6,418,104
========== ========== ========== ========== ==========

</TABLE>

<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(dollars in thousands)

BALANCE SHEET DATA
Real estate, net..................... $183,462 $167,409 $ 211,424 $ 224,764 $229,482
Notes and interest receivable, net... 166,154 114,525 24,943 13,279 10,246
Total assets......................... 375,281 337,782 279,580 281,333 292,930
Notes and interest payable........... 277,734 358,100 339,102 325,921 326,500
Redeemable General Partner interest.. -- -- 45,442 37,855 31,997
Partners' equity (deficit)........... 89,686 (32,115) (122,275) (112,946) (99,267)
</TABLE>

Units and per unit data have been restated for the three-for-one unit split,
effected January 2, 1996.

28
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Introduction

NRLP is a Delaware limited partnership formed on January 29, 1987, that owns and
operates through NOLP, also a Delaware limited partnership (the "operating
partnership"), a portfolio of real estate and mortgage notes. Most of NOLP's
properties were acquired in transactions consummated on September 18, 1987, when
NOLP acquired all of the assets and assumed all of the liabilities of 35 public
and private limited partnerships. NRLP and NOLP operate as an economic unit and,
unless the context otherwise requires, all references herein to NRLP shall
constitute references to NRLP and NOLP as a unit.

Proposed Transaction with American Realty Investors, Inc. On November 3, 1999,
NRLP and ART jointly announced their agreement to combine, in a tax free
exchange, under the ownership of a new company to be named ARI. ARI will
distribute shares of its common stock to ART stockholders and NRLP unitholders.
NRLP unitholders, except for ART, will receive one share of ARI common stock for
each unit of NRLP held. ART stockholders will receive .91 shares of ARI common
stock for each share of ART common stock held. ART preferred stock will convert
into one share of preferred stock of ARI, having substantially the same rights
as ART's preferred stock. The share exchange and merger were subject to a vote
of stockholders/unitholders of both entities. Approval required the vote of the
unitholders holding a majority of NRLP's outstanding units, and the vote of the
stockholders holding a majority of ART's outstanding shares of common and
preferred stock. As of March 3, 2000, ART owned approximately 55.4% of the
outstanding units of NRLP and BCM owned approximately 12.4% of the outstanding
units of NRLP and 56.9% of the outstanding shares of ART's common stock. At
special meetings held on March 21, 2000, the NRLP unitholders and ART
stockholders approved the merger proposal. The merger is expected to be
completed early in the second quarter of 2000.

Liquidity and Capital Resources

NMC, the general partner of NRLP, has discretion in determining methods of
obtaining funds for NRLP's operations. NRLP's governing documents place no
limitation on the amount of leverage that NRLP may incur either in the aggregate
or with respect to any particular property or other investment. At December 31,
1999, the aggregate loan-to-value ratio of NRLP's real estate portfolio,
computed on the basis of the ratio of total property-related debt to aggregate
estimated current values, was 41.1% compared to 63.5% at December 31, 1998.

Cash and cash equivalents totaled $2.1 million at December 31, 1999 as compared
with $9.0 million at December 31, 1998.

NRLP's principal sources of cash have been and will continue to be from property
operations, collection of principal and interest on its mortgage notes
receivable and externally generated funds. Externally

29
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

generated funds include borrowings, proceeds from the sale of properties and
other assets and proceeds from borrowings secured by NRLP's properties or
mortgage notes receivable. Management expects that NRLP's cash flow from
property operations together with externally generated funds will be sufficient
to meet NRLP's various cash needs in 2000, including, but not limited to,
funding of lending commitments, distributions to unitholders, property
maintenance and improvements and debt service obligations, as more fully
discussed in the paragraphs below.

Currently, only six of NRLP's properties are not encumbered by mortgage debt. In
2000, mortgage debt totaling $36.2 million comes due. For those mortgages that
mature in 2000, it is management's intention to either seek to extend the due
dates one or more years, or refinance the debt on a long-term basis, or pay them
when due. Management believes it will continue to be successful in obtaining
loan extensions or refinancings.

Cash flow from property operations (rents collected less payments for property
operating expenses) decreased to $39.9 million in 1999 from $42.9 million in
1998. A decrease of $9.0 million was due to properties sold in 1999 and in 1998.
This decrease is partially offset by the payment in 1998 of expenses accrued at
December 31, 1997, and an increase of $1.8 million primarily due to NRLP's
continued success in increasing rental rates during 1999. Rental rates at NRLP's
apartments, which account for over 70% of NRLP's properties, increased an
average of 1% in 1999 over 1998, although occupancy rates decreased an average
of 1%. At NRLP's commercial properties, rental rates increased an average of 2%
over 1998, and occupancy rates increased an average of 2.5%. Management believes
that this trend in rental rates will continue if the economy remains stable or
improves and expects that occupancy rates will also improve in 2000.

Interest collected on mortgage notes receivable increased to $12.0 million in
1999 from $4.1 million in 1998. Of the increase, $9.0 million was due to the
increased balance of the ART loan, funding of which began in 1998 and continued
in 1999 and $2.0 million was due to the collection of interest on the paydowns
of four loans and the payoffs of nine loans in 1999 where interest was not due
until payoff or maturity. These increases were partially offset by a decrease
of $1.3 million due to loans that were paid off in 1998. Other interest
collected decreased $1.2 million due to a decrease in short-term investments.
Interest is expected to be an important source of cash to NRLP in 2000.

Interest paid on notes payable decreased to $24.9 million in 1999 from $27.9
million in 1998. Of this decrease, $3.5 million was due to the sale of 11
apartments, subject to debt, in 1999 and 10 apartments and two commercial
properties in 1998 and $1.4 million was due to loans paid off in 1998. These
decreases were partially offset by an increase of $1.7 million due to properties
refinanced, where the debt balance was increased or unencumbered properties
financed in 1998 and 1999 and $301,000 was due to properties acquired in 1999.

30
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

General and administrative expenses paid decreased to $6.8 million in 1999 from
$7.8 million in 1998. The decrease was due to a decrease in legal and other
expenses due to the settlement of two lawsuits in 1998 partially offset by an
increase in cost reimbursements to BCM.

Incentive disposition fees of $2.2 million were paid to NMC, NRLP's general
partner, in 1999, on the sale of the Mesa Ridge Apartments, Country Place
Apartments, Oakhollow Apartments, Tanglewood Apartments and Manchester Commons
Apartments. Also in 1999, base compensation of $315,000 was paid to NMC per the
terms of the NRLP partnership agreement. No base or incentive disposition fees
were paid in 1998. See "NOTE 8. "GENERAL PARTNER FEES AND COMPENSATION."

NRLP was involved in significant investing activities during 1999. NRLP
originated 5 mortgage or other loans totaling $14.4 million, funded $92.1
million on existing loan commitments, including $74.4 million to ART, and
collected $18.4 million on its mortgage notes receivable, primarily from the
payoff of five notes. In 1999, NRLP made improvements to its properties totaling
$2.0 million and funded $28.7 million in construction and development costs. In
1999, NRLP also sold 14 apartments and one parcel of unimproved land, for a
total of $184.5 million, receiving net cash of $46.9 million after the payoff or
assumption by the purchaser of mortgage debt, providing purchase money financing
and the payment of various closing costs. NRLP purchased an office building, a
ground lease and three parcels of unimproved land for a total of $8.9 million,
paying $5.9 million in cash and obtaining mortgage financing or assuming loans
for the remainder of purchase prices.

In 1999, NRLP received net cash of $16.3 million from mortgage financing secured
by three unencumbered apartments, by five notes receivable and by two office
buildings. In addition, NRLP refinanced the mortgages secured by two apartments
and the construction loan secured by an office building, receiving net cash of
$8.4 million after paying off $17.2 million in mortgage debt and the payment of
various closing costs. Also in 1999, NRLP made scheduled principal payments on
mortgages totaling $8.2 million.

NRLP has paid quarterly distributions since the fourth quarter of 1993. NRLP
declared total distributions of $.50 per unit or $3.2 million in 1999.

Management reviews the carrying values of NRLP's properties and mortgage notes
receivable at least annually and whenever events or a change in circumstances
indicate that impairment may exist. Impairment is considered to exist if, in the
case of a property, the future cash flow from the property (undiscounted and
without interest) is less than the carrying amount of the property. For notes
receivable impairment is considered to exist if it is probable that all amounts
due under the terms of the note will not be collected. If impairment is found to

31
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

exist, a provision for loss is recorded by a charge against earnings.
Management's review of NRLP's mortgage notes receivable includes an evaluation
of the collateral property securing such note. The property review generally
includes (1) selective property inspections, (2) a review of the property's
current rents compared to market rents, (3) a review of the property's expenses,
(4) a review of maintenance requirements, (5) a review of the property's cash
flow, (6) discussions with the property manager and (7) a review of properties
in the surrounding area.

As more fully discussed in NOTE 13. "COMMITMENTS AND CONTINGENCIES--Moorman
Settlement," the Moorman litigation settlement agreement (the "Moorman
Settlement Agreement") set forth certain aggressive, annually increasing targets
relating to the price of NRLP's units of limited partner interest which were not
achieved, resulting in, among other things, the required withdrawal of SAMLP as
NRLP's general partner upon election of a successor.

Pursuant to NRLP partnership agreement and the Moorman Settlement Agreement, the
withdrawal of SAMLP as general partner required NRLP to acquire its interest in
NRLP (the "Redeemable General Partner Interest") at its then fair value, and to
pay certain fees and other compensation. The Moorman Settlement Agreement
provided that any payment for such Redeemable General Partner Interest, fees and
other compensation during the pendency of the Moorman Settlement Agreement could
have, at the option of the Oversight Committee (also established under the
Moorman Settlement Agreement), been paid over three years pursuant to a secured
promissory note bearing interest at a financial institution's prime rate.

On July 15, 1998, NRLP, SAMLP and the Oversight Committee executed an Agreement
for Cash Distribution and Election of successor general partner (the "Cash
Distribution Agreement") which provided for the nomination of NMC, which is an
entity affiliated with SAMLP, to be the successor general partner of NRLP, for
the distribution of $11.4 million to the Moorman Class Members and for the
resolution of all related matters under the Moorman Settlement Agreement. The
Cash Distribution Agreement was submitted to the Court on July 23, 1998. On
August 4, 1998, the Court entered an order granting preliminary approval of the
Cash Distribution Agreement. On September 9, 1998, a notice was mailed to the
Moorman Class Members describing the Cash Distribution Agreement. On October 16,
1998, a final hearing was held to consider any objections to the Cash
Distribution Agreement. On October 23, 1998, the Court entered an order granting
final approval of the Cash Distribution Agreement. The Court also entered orders
requiring NRLP to pay $404,000 in attorney's fees to Joseph B. Moorman's legal
counsel, $30,000 to Joseph B. Moorman and $404,000 in attorney's fees to Robert
A. McNeil's legal counsel.

Pursuant to the order, in November 1998, $11.4 million was deposited by NRLP
into an escrow account and then transferred to the control of an

32
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

independent settlement administrator. The distribution of the cash was made to
the Moorman Class Members pro rata based upon the number of units originally
issued to each Moorman Class Member upon the formation of NRLP in 1987. On March
10, 1999, the Court entered an order providing for the initial distribution of
the cash not later than March 31, 1999. The distribution of cash was under the
control of the independent settlement administrator.

The proposal to elect NMC as the successor general partner was submitted to the
unitholders of NRLP for a vote at a special meeting of unitholders held on
December 18, 1998. All units of NRLP owned by affiliates of SAMLP (approximately
61.8% of the outstanding units of NRLP as of the November 27, 1998, record date)
were voted pro rata with the vote of the other limited partners. NMC was elected
by a majority vote of the unitholders. The Moorman Settlement Plan remained in
effect until December 18, 1998, when SAMLP resigned as general partner and NMC
was elected successor general partner and took office.

Under the Cash Distribution Agreement, SAMLP waived its right under the Moorman
Settlement Agreement to receive any payment from NRLP of the fees it was
entitled to receive upon the election of a successor general partner. In
addition, pursuant to the Cash Distribution Agreement, the NRLP partnership
agreement was amended to provide that, upon voluntary resignation of the general
partner, the resigning general partner shall not be entitled to the repurchase
of its general partner interest under Paragraph 17.9 of NRLP partnership
agreement.

In March 1999, the Board of Directors of NMC affirmed NRLP's unit repurchase
program which was established in 1987. The Board also established a new
authorization for the repurchase of up to an additional 500,000 NRLP units in
open-market transactions. Through December 31, 1999, NRLP had repurchased a
total of 402,960 units under the prior authorization at a total cost of $5.1
million. NRLP has not purchased any units under the repurchase programs since
January 1993.

Results of Operations

1999 Compared to 1998. NRLP reported net income of $124.8 million for 1999,
including gains on sale of real estate totaling $114.4 million,

33
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

compared to net income of $47.5 million for 1998, including gains on sale of
real estate totaling $52.6 million. These and other factors contributing to
NRLP's net income are discussed in the following paragraphs.

Rents decreased to $87.0 million in 1999, from $107.1 million in 1998. The
decrease was due to the sale of 14 apartments in 1999 and ten apartments and two
commercial properties in 1998, partially offset by increases in rental rates at
both apartments and commercial properties. Rents are expected to continue to
decrease during 2000 as NRLP continues to selectively sell properties.

Interest income increased to $17.7 million in 1999, from $6.7 million in 1998.
An increase of $13.6 million was attributable to loans funded in 1999 and 1998.
This increase was partially offset by a decrease of $805,000 due to loans paid
off during 1999 and 1998 and $1.1 million due to decreases in short-term
investment income. Interest income for 2000 is expected to increase due to the
loans funded in 1999.

Interest expense increased to $27.2 million in 1999, from $26.7 million in 1998.
An increase of $301,000 was due to properties acquired in 1999 and an increase
of $3.3 million was due to interest expense recorded on borrowings secured by
mortgages on three unencumbered apartments and two unencumbered commercial
properties in 1999 and four unencumbered apartments and seven notes receivable
in 1998 and the refinancing of 47 of the GCLP apartments and the refinancing of
mortgages in 1999 and 1998 where the loan balance was increased. These
increases were offset by a decrease of $1.5 million due to loans paid off in
1998, and a decrease of $2.8 million due to the sale of a total of 24
properties, subject to debt, in 1999 and 1998. Interest expense is expected to
decline during 2000 as selected property sales are expected to continue.

Deferred borrowing costs written off in 1998 is the unamortized borrowing costs
associated with the November 1992 financing of the GCLP properties that were
expensed on the refinancing of the properties in July 1998.

Depreciation, property taxes and insurance, utilities, property level payroll,
repairs and maintenance, other operating expenses and property management fees
in 1999, all declined from 1998 due to the sale of ten apartments and two
commercial properties in 1998 and 14 apartments in 1999. These costs are
expected to continue to decrease during 2000 as selected property sales are
expected to continue.

General and administrative expenses of $6.7 million in 1999, approximated the
$6.8 million in 1998. A decrease in legal fees of $1.1 million resulting from
the settlement of two lawsuits in 1998, was partially offset by an increase of
$863,000 in cost reimbursements to BCM.

In 1999, NRLP incurred $2.2 million in incentive disposition fees to NMC related
to the sale of the Mesa Ridge Apartments, Country Place

34
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

Apartments, Oakhollow Apartments, Windridge Apartments, Tanglewood Apartment and
Manchester Commons Apartments. Also in 1999, base compensation of $315,000 was
paid to NMC per the terms of the NRLP partnership agreement. No such fees were
earned by the general partner in 1998.

In 1999, gains on sale of real estate totaling $114.4 million were realized,
$2.7 million on the sale of the Olde Towne Apartments, $1.3 million on the sale
of the Santa Fe Apartments, $12.3 million on the sale of the Mesa Ridge
Apartments, $2.2 million on the sale of the Horizon East Apartments, $2.6
million on the sale of the Lantern Ridge Apartments, $3.2 million on the sale
of the Barcelona Apartments, $3.9 million on the sale of Country Place
Apartments, $13.5 million on the sale of Lake Nora Apartments, $4.5 million on
the sale of the Fox Club Apartments, $14.1 million on the sale of Oakhollow
Apartments, $13.6 million on the sale of the Windridge Apartments, $26.3 million
on the sale of Tanglewood Apartments, $4.5 million on the sale of Bavarian Woods
Apartments, $10.2 million on the sale of Manchester Commons Apartments, and a
loss of $505,000 on the sale of Stone Meadows land. See NOTE 3. "REAL ESTATE."

In 1998, gains on sale of real estate totaling $52.6 million were realized, $3.1
million on the sale of the Brookview Apartments, $2.9 million on the sale of the
Creekwood Apartments, $772,000 on the sale of the Indian Meadows land, $8.5
million on the sale of the Alexandria Apartments, $830,000 on the sale of the
Countryside Plaza Shopping Center, $1.7 million on the sale of Lakewood Park
Apartments, $3.9 million on sale of the Royal Oaks Apartments, $5.0 million on
the sale of Skipper's Pond Apartments, $2.9 million on the sale of Towne Oaks
Apartments, $4.2 million on the sale of Oakmont Apartments, $3.8 million on the
sale of River Glen Apartments and $2.6 million on the sale of Wisperwood
Apartments, and a $12.4 million deferred gain on a prior year's property sale,
on the collection of the mortgage note receivable secured by the property.

1998 Compared to 1997. NRLP reported net income of $47.5 million for 1998,
including gains on sale of real estate of $52.6 million, compared to net income
of $8.7 million for 1997, including gains on the sale of real estate of $8.4
million. These and other factors contributing to NRLP's net income are discussed
in the following paragraphs.

Rents decreased to $107.1 million for 1998, from $112.9 million for 1997. This
decrease was primarily due to a decrease of $9.6 million from the sale of an
apartment and three commercial properties in 1997 and ten apartments and two
commercial properties in 1998. This decrease was partially offset by an increase
of $3.7 million due to increased rental rates at apartment and commercial
properties.

Interest income increased to $6.7 million for 1998, from $4.5 million for 1997.
An increase of $3.5 million was attributable to loans funded

35
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

in 1997 and 1998 and an additional $865,000 was due to increased short-term
investment income. These increases were partially offset by a decrease of $2.2
million due to loans paid off during 1998 and 1997.

Interest expense decreased to $26.7 million for 1998 from $34.2 million for
1997. A decrease of $5.0 million was due to loans paid off in 1997 and 1998,
secured by mortgage notes receivable. A decrease of $1.2 million was due to the
payoff of the pension notes in September 1997. A decrease of $2.3 million was
due to a total of 16 properties being sold, subject to debt, in 1998 and 1997.
These decreases were partially offset by increases of $1.2 million due to
interest expense recorded on borrowings in 1997, secured by mortgages on four
unencumbered commercial properties, NOLP's interest in GCLP and six notes
receivable and four unencumbered apartments and seven notes receivable in 1998,
the refinancing of 47 of the GCLP apartments and the refinancing of mortgages in
1997 and 1998 where the loan balance was increased.

Deferred borrowing costs for 1998 were the unamortized borrowing costs
associated with the November 1992 blanket mortgage refinancing of the GCLP
properties. The mortgage debt was refinanced in July 1998. See NOTE 7. "NOTES
AND INTEREST PAYABLE."

Property taxes and insurance, utilities, property level payroll and other
operating expenses for 1998 declined from 1997 due to the sale of ten apartments
and two commercial properties in 1998 and an apartment and three commercial
properties in 1997. Repairs and maintenance and property management fees
approximated that of 1997.

General and administrative expenses decreased to $6.8 million in 1998 from $7.9
million in 1997. The decrease is due to a decrease in legal fees related to the
Southern Palms litigation of $754,000, a decrease of $256,000 in legal and other
fees related to the Moorman settlement, a decrease of $580,000 related to NRLP's
overhead reimbursements to BCM and a decrease of $125,000 is due to a decrease
in audit and tax preparation costs.

In 1998, gains on sale of real estate totaled $52.6 million, including $3.1
million on the sale of Brookview Apartments, $2.9 million on the sale of
Creekwood Apartments, $772,000 on the sale of Indian Meadows land, $8.5 million
on the sale of Alexandria Apartments, $830,000 on the sale of Countryside Plaza
Shopping Center, $1.7 million on the sale of Lakewood Park Apartments, $3.9
million on sale of the Royal Oaks Apartments, $5.0 million on the sale of
Skipper's Pond Apartments, $2.9 million on the sale of Towne Oaks Apartments,
$4.2 million on the sale of Oakmont Apartments, $3.8 million on the sale of
River Glen Apartments, $2.6 million on the sale of Wisperwood Apartments and a
$12.4 million deferred gain on a prior's year property sale, on the collection
of the mortgage note receivable secured by the property. See NOTE 3. "REAL
ESTATE" and NOTE 4. "NOTES RECEIVABLE."

36
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

In 1997, gains on sale of real estate totaled $8.4 million, including $3.6
million on the sale of the Tollhill East Office Building, a $2.1 million
deferred gain recognized on the payoff of a note receivable, a gain of $563,000
on the sale of Crestview Shopping Center and a gain of $2.1 million on the sale
of Village Square Apartments.

Environmental Matters

Under various federal, state and local environmental laws, ordinances and
regulations, NRLP may be potentially liable for removal or remediation costs, as
well as certain other potential costs relating to hazardous or toxic substances
(including governmental fines and injuries to persons and property) where
property-level managers have arranged for the removal, disposal or treatment of
hazardous or toxic substances. In addition, certain environmental laws impose
liability for release of asbestos-containing materials into the air, and third
parties may seek recovery from NRLP for personal injury associated with such
materials.

Management is not aware of any environmental liability relating to the above
matters that would have a material adverse effect on NRLP's business, assets or
results of operations.

Impact of Inflation

The effects of inflation on NRLP's operations are not quantifiable. Revenues
from property operations tend to fluctuate proportionately with inflationary
increases and decreases in housing costs. Fluctuations in the rate of inflation
also affect sales values of properties and the ultimate gain to be realized from
property sales. To the extent that inflation effects interest rates, NRLP's
earnings from short-term investments, the cost of new financings as well as the
cost of variable interest rate debt will be affected.

Taxes

NRLP is a publicly traded limited partnership and, for federal income tax
purposes, all income or loss generated by it is included in the income tax
returns of the individual partners. Under Internal Revenue Service guidelines
generally applicable to publicly traded partnerships, a limited partner's use of
his or her share of partnership losses is subject to special limitations.

Year 2000

Even though January 1, 2000, has passed and no adverse impact from the
transition to the year 2000 has been experienced, no assurance can be provided
that NRLP's suppliers and tenants have not been affected in a manner not yet
apparent. As a result, management will continue to monitor NRLP's year 2000
compliance and the year 2000 compliance of its suppliers and tenants.

37
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK

NRLP's future operations, cash flow and fair values of financial instruments are
partially dependent upon the then existing market interest rates and market
equity prices. Market risk is the changes in the market rates and prices, and
the effect of the changes on future operations. Market risk is managed by
matching a property's anticipated net operating income to an appropriate
financing.

The following table contains only those exposures that existed at December 31,
1999. Anticipation of exposures of risk on positions that could possibly arise
was not considered. NRLP's ultimate interest rate risk and its effect on
operations will depend on future capital market exposures, which cannot be
anticipated with a probable assurance level. Dollars are in thousands.

Assets
<TABLE>
<CAPTION>

Trading Instruments-Equity Price Risk

<S> <C> <C> <C> <C> <C> <C> <C>
Marketable securities at market
value................................ $ 3,327

Non-trading Instruments-Equity
Price Risk

Notes receivable
Variable interest rate-fair value $ 18,072

2000 2001 2002 2003 2004 Thereafter Total
------- ------- ------- -------- ----- ---------- --------
Instrument's maturities.............. $ -- $ -- $ -- $ -- $ -- $5,675 $ 5,675
Instrument's amortization............ 500 500 500 750 750 3,750 6,750
Interest........................... 969 928 888 833 772 2,495 6,885
Average rate....................... 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%

Fixed interest rate-fair value $157,735
2000 2001 2002 2003 2004 Thereafter Total
------- ------- ------- -------- ----- ---------- ---------
Instrument's maturities.............. $18,451 $ 4,749 $ 4,970 $124,483 $ -- $ -- $152,653
Instrument's amortization............ -- -- -- -- -- -- --
Interest........................... 17,323 16,282 15,337 14,014 -- -- 62,956
Average rate....................... 12.1% 12.4% 12.1% 11.3% -- --
</TABLE>

38
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK

Liabilities
Non-trading Instruments-Equity
Price Risk

Notes payable
<S> <C> <C> <C> <C> <C> <C> <C>
Variable interest rate-fair
value $ 58,675
2000 2001 2002 2003 2004 Thereafter Total
------- ------- ------- ------- ------- ---------- --------
Instrument's maturities........ $21,675 $12,934 $ 5,943 $ -- $ -- $ 1,989 $ 42,541
Instrument's amortization...... 303 739 379 49 53 329 1,852
Interest...................... 2,806 1,283 407 221 216 965 5,898
Average rate.................. 8.4% 8.2% 7.3% 8.5% 8.5% 8.5%

Fixed interest rate-fair value $211,391
2000 2001 2002 2003 2004 Thereafter Total
------- ------- ------- ------- ------- ---------- --------
Instrument's maturities........ $10,482 $ 3,016 $ 2,880 $50,309 $ -- $125,864 $192,551
Instrument's amortization...... 3,741 4,393 4,128 3,678 3,239 20,749 39,928
Interest...................... 16,932 15,244 14,956 13,081 10,836 32,998 104,047
Average rate.................. 7.5% 7.1% 7.2% 7.4% 7.3% 7.1%
</TABLE>

39
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Certified Public Accountant.................................................... 41

Consolidated Balance Sheets--December 31, 1999 and 1998.............................................. 42

Consolidated Statements of Operations--Years Ended December 31, 1999, 1998 and 1997.................. 43

Consolidated Statements of Partners' Equity (Deficit)--Years Ended December 31, 1999, 1998 and 1997.. 44

Consolidated Statements of Cash Flows--Years Ended December 31, 1999, 1998 and 1997.................. 45

Notes to Consolidated Financial Statements........................................................... 47

Schedule III--Real Estate and Accumulated Depreciation............................................... 72

Schedule IV--Mortgage Loans on Real Estate........................................................... 77
</TABLE>

All other schedules are omitted because they are not required, are not
applicable or the information required is included in the Consolidated Financial
Statements or the notes thereto.

40
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Partners
National Realty, L.P.

We have audited the accompanying consolidated balance sheets of National Realty,
L.P., a limited partnership, as of December 31, 1999 and 1998, and the related
consolidated statements of operations, partners' equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1999. We have also
audited the schedules listed in the accompanying index. These financial
statements and schedules are the responsibility of the Partnership's General
Partner. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedules. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
National Realty, L.P. at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.

Also, in our opinion, the schedules present fairly, in all material respects,
the information set forth therein.

BDO Seidman, LLP

Dallas, Texas
March 23, 2000

41
<PAGE>

NATIONAL REALTY, L.P.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
----------- -----------
Assets (dollars in thousands)
<S> <C> <C>
Real estate held for investment
Land....................................................... $ 39,842 $ 39,400
Buildings and improvements................................. 282,521 325,779
--------- ---------
322,363 365,179
Less--Accumulated depreciation............................. (146,534) (197,770)
--------- ---------
175,829 167,409
Foreclosed real estate, held for sale....................... 7,633 --
Notes and interest receivable
Performing (including $149,980 in 1999 and $62,357 in
1998 from affiliates).................................... 165,155 109,628
Nonperforming (including $1,353 in 1999 from affiliate) 2,909 6,807
--------- ---------
168,064 116,435
Less--allowance for estimated losses........................ (1,910) (1,910)
--------- ---------
166,154 114,525

Cash and cash equivalents................................... 2,066 9,025
Accounts receivable (including $489 in 1999 and $11,046
in 1998 from affiliates)................................... 2,873 12,316
Prepaid expenses............................................ 1,324 1,230
Escrow deposits and other assets (including $1,244 in 1999
and $730 in 1998 from affiliate)........................... 6,796 20,506
Marketable equity securities of affiliate (at market)....... 3,327 3,205
Deferred financing costs.................................... 9,279 9,566
--------- ---------
$ 375,281 $ 337,782
========= =========
Liabilities and Partners' Equity (Deficit)
Liabilities
Notes and interest payable................................. $ 277,734 $ 358,100
Accrued property taxes..................................... 3,660 7,121
Tenant security deposits................................... 2,033 2,919
Accounts payable and other liabilities (including $345
in 1999 to affiliates)................................... 2,168 1,757
--------- ---------
285,595 369,897
Commitments and contingencies
Partners' equity (deficit)
General Partner............................................ 2,076 (408)
Limited Partners (6,321,522 units in 1999 and 6,321,609
units in 1998).......................................... 84,552 (34,642)
Unrealized gain on marketable equity securities of
affiliate............................................... 3,058 2,935
--------- ---------
89,686 (32,115)
--------- ---------
$ 375,281 $ 337,782
========= =========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

42
<PAGE>

NATIONAL REALTY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
(dollars in thousands, except per
unit)

Revenues
Rents.............................................. $ 86,978 $ 107,127 $ 112,875
Interest (including $12,360 in 1999 and $404 in
1998 from affiliates)............................. 17,676 6,707 4,490
---------- ---------- ----------
104,654 113,834 117,365
---------- ---------- ----------

Expenses
Interest........................................... 27,217 26,722 34,189
Deferred borrowing costs written off............... -- 12,963 --
Depreciation....................................... 7,708 9,691 10,338
Property taxes & insurance......................... 9,239 10,791 12,279
Utilities.......................................... 8,381 10,738 12,059
Repairs and maintenance............................ 19,682 25,888 24,735
Property-level payroll costs....................... 4,882 6,070 6,412
Other property operation expenses.................. 3,512 4,299 4,344
Property management fees (including $1,942 in
1999, $1,290 in 1998 and $826 in 1997 to
affiliates)....................................... 4,405 4,950 4,791
General and administrative (including $4,728 in
1999, $3,865 in 1998 and $4,448 in 1997 to
affiliates)....................................... 6,723 6,820 7,856

General partner fees............................... 2,509 -- --
---------- ---------- ----------
94,258 118,932 117,003

Income (loss) from operations....................... 10,396 (5,098) 362
Gain on sale of real estate......................... 114,443 52,589 8,356
---------- ---------- ----------

Net income.......................................... $ 124,839 $ 47,491 $ 8,718
========== ========== ==========

Earnings per unit
Net income.......................................... $ 19.36 $ 7.36 $ 1.35
========== ========== ==========

Weighted average units of limited partner interest
used in computing earnings per unit................ 6,321,531 6,321,425 6,327,418
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

43
<PAGE>

NATIONAL REALTY, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Accumulated Redeemable
Other General Partners
General Limited Comprehensive Partner Equity
Partner Partner Income Interest (Deficit)
-------- ---------- ------------- ----------- -----------
(dollars in thousands, except per unit)

<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997..... $ 2,649 $(74,568) $1,003 $(42,030) $(112,946)

Comprehensive income
Unrealized gain on
marketable equity
securities of affiliate.... -- -- 1,541 -- 1,541
Net income.................. 173 8,545 -- -- 8,718
---------
10,259
Adjustment to Redeemable
General Partner Interest.... -- -- -- (7,587) (7,587)

Units issued on exercise of
warrants.................... -- 20 -- -- 20
Distributions ($1.90 per
-- (12,021) -- -- (12,021)
unit)....................... ------- -------- ------ ---------- ---------
Balance, December 31, 1997... 2,822 (78,024) 2,544 (49,617) (122,275)

Comprehensive income
Unrealized gain on
marketable equity
securities of affiliate.... -- -- 391 -- 391
Net income.................. 945 46,546 -- -- 47,491
---------
47,882
Adjustment to Redeemable
General Partner Interest.... (4,175) -- -- 49,617 45,442
Distributions ($.50 per
unit)....................... ------- (3,164) -- -- (3,164)
------- -------- ------ ---------- ---------
Balance, December 31, 1998... (408) (34,642) 2,935 -- (32,115)

Comprehensive income
Unrealized gain on
marketable equity
securities of affiliate.... -- -- 123 -- 123
Net income.................. 2,484 122,355 -- -- 124,839
---------
124,962
Distributions ($.50 per
unit)....................... -- (3,161) -- -- (3,161)
------- -------- ------ ---------- ---------
Balance, December 31, 1999... $ 2,076 $ 84,552 $3,058 $ -- $ 89,686
======= ======== ====== ========== =========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

44
<PAGE>

NATIONAL REALTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
(dollars in thousands)
Cash Flows From Operating Activities
Rents collected...................................... $ 87,240 $ 107,135 $113,379
Interest collected (including $9,642 in 1999 and
$132 in 1998 from affiliates)....................... 12,024 4,139 4,111
Interest paid........................................ (24,903) (27,878) (30,345)
Payments for property operations (including $1,942,
$1,290 in 1998 and $826 in 1997 to affiliates)...... (47,335) (64,244) (62,835)
General and administrative expenses paid (including
$4,728 in 1999, $3,865 in 1998 and $4,448 in 1997
to affiliates)...................................... (6,846) (7,810) (9,536)
Other................................................ (413) (427) 241
--------- --------- --------
Net cash provided by operating activities......... 19,767 10,915 15,015

Cash Flows From Investing Activities
Proceeds from sales of real estate................... 163,487 61,025 14,294
Acquisition of real estate........................... (8,289) -- --
Real estate improvements............................. (2,046) (2,820) (5,004)
Construction and development......................... (28,712) -- --
Collections on notes receivable...................... 18,443 24,160 13,522
Funding of notes receivable.......................... (106,524) (98,716) (22,898)
General partner fees................................. (2,509) -- --
--------- --------- --------
Net cash provided by (used in) investing
activities....................................... 33,850 (16,351) (86)

Cash Flows From Financing Activities
Proceeds from notes payable.......................... 55,849 352,813 36,351
Payments of notes payable............................ (127,998) (320,712) (23,047)
Payment of pension notes............................. -- -- (14,645)
Reimbursements from (advances to) affiliates, net.... 9,802 (11,046) --
(Deposit to) receipt from escrow..................... 5,957 (5,957) 12,423
Deferred borrowing costs (including $561 in 1999,
$2,674 in 1998 and $332 in 1997 to affiliate)....... (2,032) (10,948) (2,346)
Refunds/(deposits) on pending transactions........... 2,298 (2,298) --
Exercise of warrants................................. -- -- 20
Distributions to unitholders......................... (3,161) (3,164) (12,021)
Distributions to general partner..................... (1,291) (1,407) (356)
--------- --------- --------
Net cash (used in) financing activities........... (60,576) (2,719) (3,621)
--------- --------- --------

Net increase (decrease) in cash and cash equivalents (6,959) (8,155) 11,308
Cash and cash equivalents at beginning of year........ 9,025 17,180 5,872
--------- --------- --------
Cash and cash equivalents at end of year.............. $ 2,066 $ 9,025 $ 17,180
========= ========= ========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

45
<PAGE>

NATIONAL REALTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)

<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
(dollars in thousands)

Reconciliation of net income to net cash provided
by operating activities.............................
Net income.......................................... $ 124,839 $ 47,491 $ 8,718
Adjustments to reconcile net income to net cash
provided by operating activities...................
Depreciation....................................... 7,708 9,691 10,338
Gain on sale of real estate........................ (114,443) (52,589) (8,356)
Amortization of deferred borrowing costs........... 2,319 2,617 2,950
Deferred borrowing costs written off............... -- 10,346 --
(Increase) in interest receivable.................. (5,652) (2,568) (36)
(Increase) decrease in other assets................ 5,769 (419) 443
(Decrease) increase in interest payable............ (5) (1,156) 259
(Decrease) increase in other liabilities........... (768) (2,498) 699
--------- -------- -------
Net cash provided by operating activities....... $ 19,767 $ 10,915 $15,015
========= ======== =======

Schedule of noncash investing activities
Notes payable assumed by buyer upon sale of
properties......................................... $ 6,776 $ 17,116 $ --
Unrealized gain on marketable equity securities of
affiliate.......................................... 123 391 1,541
Conversion of notes receivable to property
interests.......................................... 31,170 -- --
Note payable assumed on purchase of real estate..... 974 -- --
Carrying value of real estate obtained in
satisfaction of notes receivable (a
carrying value of $7,638).......................... 7,638 -- --

</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

46
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying Consolidated Financial Statements of National Realty, L.P. and
controlled subsidiaries and partnerships (the "Partnership") have been prepared
in conformity with generally accepted accounting principles, the most
significant of which are described in NOTE 2. "SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES," and are, along with the remainder of the Notes to Consolidated
Financial Statements, an integral part of the Consolidated Financial Statements.
The data presented in the Notes to Consolidated Financial Statements are as of
December 31 of each year or for the year then ended, unless otherwise indicated.
Dollar amounts in tables are in thousands, except per unit amounts.

Certain balances for 1997 and 1998 have been reclassified to conform to the 1999
presentation.

NOTE 1. ORGANIZATION

General. National Realty, L.P. ("NRLP") is a Delaware limited partnership
which commenced operations on September 18, 1987 when through National
Operating, L.P. ("NOLP"), it acquired all of the assets and assumed all of the
liabilities of 35 public and private limited partnerships.

NRLP is the sole limited partner of NOLP and owns 99% of the beneficial interest
in NOLP. The general partner and owner of 1% of the beneficial interest in each
of NRLP and NOLP is NRLP Management Corp. ("NMC"). NMC is a wholly-owned
subsidiary of American Realty Trust, Inc. ("ART"), a publicly held real estate
company. As of March 3, 2000, ART owned approximately 55.4% of NRLP's
outstanding units of limited partner interest.

NMC, as general partner, manages the affairs of the Partnership. All decisions
relating to the Partnership, including the acquisition, disposition,
improvement, financing or refinancing of the Partnership's properties or other
investments, are made by NMC. The officers of NMC also serve as officers of ART.

In November 1992, the Partnership refinanced 52 of its apartments and a
wraparound mortgage note receivable with a financial institution. To facilitate
the refinancing, NOLP transferred those assets to Garden Capital, L.P. ("GCLP"),
a Delaware limited partnership. NOLP is the sole limited partner with a 99.3%
limited partner interest in GCLP. GCLP transferred the acquired net apartment
assets in exchange for a 99% limited partner interest in single asset limited
partnerships which were formed for the purpose of operating, refinancing and
holding title to the apartments. The single asset limited partnerships have no
significant assets other than an apartment encumbered by mortgage debt. Garden
National Realty, Inc. ("GNRI"), a wholly-owned subsidiary of ART, is currently
the .7% general partner of GCLP and 1% general partner of the single asset
partnerships.

47
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 1. ORGANIZATION (Continued)

Basic Capital Management, Inc. ("BCM"), performs certain administrative
functions for the Partnership, such as accounting services, mortgage servicing
and portfolio review and analysis, on a cost reimbursement basis. BCM is a
company owned by a trust for the benefit of the children of Gene E. Phillips.
Since February 1, 1990, BCM or affiliates of BCM have provided property
management services for the Partnership. Currently, Triad Realty Services, Ltd.
("Triad"), performs such property management services. BCM or affiliates of BCM
also perform loan placement services, leasing services and real estate brokerage
and acquisition services and other services for the Partnership for fees and
commissions. See NOTE 8. "GENERAL PARTNER FEES AND COMPENSATION."

Participation in net income, net loss and distributions. The limited partners
of NRLP have a 99% interest and NMC has 1% interest in the net income or net
loss of NRLP. NRLP has a 99% and the NMC has a 1% interest in the net income or
net loss of NOLP. The 1% general partner interest in each of NRLP and NOLP is
equal to a 1.99% interest on a combined basis. NOLP has a 99.3% limited partner
interest and GNRI has a .7% general partner interest in the net income or net
loss and distributions of GCLP. GCLP has a 99% interest and GNRI has a 1%
interest in the net income or net loss and distributions of the single asset
partnerships. GNRI's .7% general partner interest in GCLP and its 1% general
partner interest in the single asset partnerships is equal to a 1.68% interest
on a combined basis. For tax purposes limited partners are allocated their
proportionate share of net income or net loss commencing with the calendar month
subsequent to their entry into the Partnership. NMC receives base compensation
equal to 10% of the distributions to unitholders from the Partnership's cash
from operations.

General Partner's capital contribution. In return for its 1% interest in NRLP,
the general partner was required to make aggregate capital contributions to the
Partnership in an amount equal to 1.01% of the total initial capital
contributions to the Partnership. The general partner contributed $500,000 in
cash with the remaining contribution evidenced by a promissory note bearing
interest at the rate of 10% per annum, compounded semi-annually, payable on the
earlier of September 18, 2007 or liquidation of the Partnership or termination
of the general partner's interest in the Partnership. The principal balance of
such promissory note was $4.2 million at December 31, 1999 and 1998.

GNRI received its .7% general partner interest in GCLP in exchange for a
mortgage note receivable. NRLP subsequently purchased the mortgage note
receivable for a $900,000 note payable. GNRI received its 1% general partner
interest in the single asset partnerships in exchange for agreeing to manage the
apartments owned by each of the single asset partnerships.

48
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 1. ORGANIZATION (Continued)

Proposed Transaction with American Realty Investors, Inc. On November 3, 1999,
the Partnership and ART jointly announced their agreement to combine, in a tax
free exchange, under the ownership of a new company to be named American Realty
Investors, Inc. ("ARI"). ARI will distribute shares of its common stock to ART
stockholders and Partnership unitholders. Partnership unitholders, except for
ART, will receive one share of ARI common stock for each Partnership unit held.
ART stockholders will receive .91 shares of ARI common stock for each share of
ART common stock held. ART preferred stock will convert into one share of
preferred stock of ARI, having substantially the same rights as ART's preferred
stock. The share exchange and merger were subject to a vote of
stockholders/unitholders of both entities. Approval required the vote of the
unitholders holding a majority of the Partnership's outstanding units, and the
vote of the stockholders holding a majority of ART's outstanding shares of
common and preferred stock. As of March 3, 2000, ART owned approximately 55.4%
of the outstanding units of the Partnership and BCM owned approximately 12.4% of
the outstanding units of the Partnership and 56.9% of the outstanding shares of
ART's common stock. At special meetings held on March 21, 2000, Partnership
unitholders and ART stockholders approved the merger proposal. The merger is
expected to be completed early in the second quarter of 2000.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation. The Consolidated Financial Statements include the
accounts of NRLP, NOLP, and controlled partnerships and subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Minority interests, which are not significant, are included in other
liabilities.

Accounting estimates. In the preparation of Consolidated Financial Statements,
in conformity with generally accepted accounting principles it was necessary for
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the Consolidated Financial Statements and the reported amounts of
revenues and expenses for the year then ended. Actual results could differ from
these estimates.

Revenue recognition on the sale of real estate. Sales of real estate are
recognized when and to the extent permitted by Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate" ("SFAS No. 66"). Until
the requirements of SFAS No. 66 for full profit recognition have been met,
transactions are accounted for using either the deposit, the installment, the
cost recovery or the financing method, whichever is appropriate.

49
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Real estate held for investment and depreciation. Real estate held for
investment is carried at cost. Statement of Financial Accounting Standards No.
121 ("SFAS No. 121") requires that a property be considered impaired, if the sum
of the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the property. If impairment exists, an
impairment loss is recognized, by a charge against earnings, equal to the amount
by which the carrying amount of the property exceeds the fair value of the
property. If impairment of a property is recognized, the carrying amount of the
property is reduced by the amount of the impairment, and a new cost for the
property is established. Such new cost is depreciated over the property's
remaining useful life. Depreciation is provided by the straight-line method over
estimated useful lives, which range from 5 to 40 years.

Real estate held for sale. Foreclosed real estate is initially recorded at new
cost, defined as the lower of original cost or fair value minus estimated costs
of sale. SFAS No. 121 also requires that properties held for sale be reported at
the lower of carrying amount or fair value less costs of sale. If a reduction in
a held for sale property's carrying amount to fair value less costs of sale is
required, a provision for loss is recognized by a charge against earnings.
Subsequent revisions, either upward or downward, to a held for sale property's
estimated fair value less costs of sale is recorded as an adjustment to the
property's carrying amount, but not in excess of the property's carrying amount
when originally classified as held for sale. A corresponding charge against or
credit to earnings is recognized. Properties held for sale are not depreciated.

Allowance for estimated losses. A valuation allowance is provided for
estimated losses on notes receivable considered to be impaired. Impairment is
considered to exist when it is probable that all amounts due under the terms of
the note will not be collected. Valuation allowances are provided for estimated
losses on notes receivable to the extent that the Partnership's investment in
the note exceeds the Partnership's estimate of the fair value of the collateral
securing such note.

Interest recognition on notes receivable. It is the Partnership's policy to
cease recognizing interest income on notes receivable that have been delinquent
for 60 days or more. In addition, accrued but unpaid interest income is only
recognized to the extent that the net realizable value of underlying collateral
exceeds the carrying value of the receivable.

Operating segments. Management has determined that the Partnership's
reportable operating segments are those that are based on the Partnership's
method of internal reporting, which disaggregates its operations by type of real
estate.

50
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Deferred financing costs. Deferred financing costs, which include bank, legal,
appraisal and consulting fees, are capitalized and amortized on the interest
method over the term of the related loans.

Present value discounts. The Partnership provides for present value discounts
on notes receivable or payable that have interest rates that differ
substantially from prevailing market rates and amortizes the discounts by the
interest method over the lives of the related notes. The factors considered in
determining a market rate include the borrower's credit standing, nature of the
collateral and payment terms of the note.

Marketable equity securities of affiliate. Marketable equity securities are
considered to be available-for-sale and are carried at fair value, defined as
period end closing market value. Net unrealized holding gains are reported as a
separate component of partners' equity until realized.

Fair value of financial instruments. The Partnership used the following
assumptions in estimating the fair value of its notes receivable, marketable
equity securities and notes payable. For performing notes receivable, the fair
value was estimated by discounting future cash flows using current interest
rates for similar loans. For nonperforming notes receivable, the estimated fair
value of the Partnership's interest in the collateral property was used. For
marketable equity securities, fair value was the year end closing market price
of each security. For notes payable, the fair value was estimated using current
rates for mortgages with similar terms and maturities.

Cash equivalents. For purposes of the Consolidated Statements of Cash Flows,
all highly liquid debt instruments purchased with an original maturity of three
months or less are considered to be cash equivalents.

Earnings per unit. Income per unit is presented in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." Income per unit
of limited partner interest is derived by multiplying the Partnership's net
income by 98.01% and dividing the result by the weighted average number of units
outstanding in each year, 6,321,531, 6,321,425 and 6,327,418 units in 1999, 1998
and 1997, respectively.

NOTE 3. REAL ESTATE

In 1999, 14 apartments with a total of 4,828 units were sold: Barcelona
Apartments in Tampa, Florida; Country Place Apartments in Round Rock, Texas; Fox
Club Apartments and Lake Nora Apartments in Indianapolis, Indiana; Horizon East
Apartments in Dallas, Texas; Lantern Ridge

51
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 3. REAL ESTATE (Continued)

Apartments in Richmond, Virginia; Manchester Commons Apartments in Manchester,
Missouri; Mesa Ridge Apartments in Mesa, Arizona; Oakhollow Apartments and
Windridge Apartments in Austin, Texas; Olde Towne Apartments and Bavarian Woods
Apartments in Middletown, Ohio; Santa Fe Apartments in Kansas City, Missouri and
Tanglewood Apartments in Arlington Heights, Illinois. The Partnership also sold
a 13.5 acre parcel of unimproved land in Harris County, Texas. The total sales
price was $184.5 million. The Partnership received $46.9 million in net cash
from the sales, after paying off $116.5 million in mortgage debt, providing $2.1
million in purchase money financing, and the payment of various closing costs.
An aggregate gain of $114.4 million was recognized on the sales.

In May 1999, the remaining undivided interest in a ground lease under the
149,855 sq. ft. Westwood Shopping Center in Tallahassee, Florida, was purchased
for $536,000 in cash.

Also in May 1999, the 27,000 sq. ft. Cooley Office Building in Farmers Branch,
Texas, was purchased for $3.5 million. The Partnership paid $1.5 million in
cash and obtained mortgage financing of $2.0 million.

In June 1999, the Lake Houston land, a 33.58 acre parcel of unimproved land in
Harris County, Texas, was purchased for $2.5 million in cash. A construction
loan in the amount of $13.7 million was obtained to permit construction of the
312 unit Lake Shore Villas Apartments. Construction costs are expected to
approximate $16.7 million. Construction was begun in July 1999 and is expected
to be completed in the third quarter of 2000. Through December 31, 1999, $5.4
million has been expended on construction of the apartments of which $4.2
million was from the construction loan. A total of $11,000 in interest was
capitalized in 1999.

In July 1999, the Stone Meadows land, a 13.5 acre parcel of unimproved land in
Harris County, Texas, was purchased from ART at its carrying cost of $2.2
million. NRLP paid $1.2 million in cash and assumed $974,000 in mortgage debt,
which was paid off at its maturity in October 1999. The land was acquired as an
apartment development site. After further review, management determined not to
develop apartments on the site. The land was sold in December 1999.

In December 1999, the Woolley land, a .4179 acre parcel of unimproved land in
Farmers Branch, Texas, was purchased for $205,000 in cash. The land is adjacent
to the Partnership's Centura Tower Office Building.

In 1998, 10 apartments with a total of 2,581 units were sold: Brookview
Apartments in Smyrna, Georgia; Creekwood Apartments in College Park, Georgia;
Alexandria Apartments in Decatur, Georgia; Lakewood Apartments in St.
Petersburg, Florida; Royal Oaks Apartments in Stone Mountain, Georgia; Skipper's
Pond Apartments and Wisperwood Apartments in Tampa,

52
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 3. REAL ESTATE (Continued)

Florida; Towne Oaks Apartments and Oakmont Apartments in Monroe, Louisiana; and
River Glen Apartments in Tulsa, Oklahoma. The Partnership also sold the 184,878
sq. ft. Countryside Plaza Shopping Center in Clearwater, Florida and a 338 acre
parcel of unimproved land in Granby, Colorado. The total sales price was $67.2
million. The Partnership received $40.5 million in net cash, after paying off
$18.8 million in mortgage debt and the payment of various closing costs. An
aggregate gain of $40.5 million was recognized on the sales.

In December 1998, an undivided interest in one of the ground leases under the
Westwood Shopping Center was purchased for $507,000 in cash.

The Partnership had a 75% general partner interest in Southern Palms Associates
("Southern Palms"), which owned the Southern Palms Shopping Center. In December
1997, the Partnership entered into an agreement with the 25% general partner,
which provided the partner with an option to purchase the Partnership's 75%
interest in Southern Palms. The 25% general partner exercised his option in May
1998 and acquired the Partnership's interest in Southern Palms for $5.5 million
in cash. No gain or loss was recognized.

NOTE 4. NOTES RECEIVABLE

Notes and interest receivable consisted of the following:

<TABLE>
<CAPTION>
1999 1998
--------------------- ----------------------
Estimated Book Estimated Book
---------- --------- ---------- ----------
Fair Value Value Fair Value Value
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Notes receivable
Performing (including $148,296 in 1999
and $62,085 in 1998 from affiliate).... $173,256 $162,380 $102,984 $106,893
Nonperforming (including $1,353 in 1999
2,551 2,698 9,200 9,200
from affiliate)........................ -------- -------- -------- --------
$175,807 165,078 $112,184 116,093
======== ========
Interest receivable (including $1,684 in
1999 and $272 in 1998 from affiliate)..... 2,986 2,882
Unamortized (discounts).................... -- (109)
Deferred gains............................. -- (2,431)
-------- --------
$168,064 $116,435
======== ========
</TABLE>

Interest income is recognized on nonperforming notes receivable on a cash basis.
For the years 1999, 1998 and 1997, unrecognized interest income on nonperforming
notes receivable totaled $1.0 million, $716,000 and $127,000, respectively.

Notes receivable mature from 2000 through 2009 with interest rates ranging from
8.20% to 16.0% per annum, with a weighted average interest

53
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 4. NOTES RECEIVABLE (Continued)

rate at December 31, 1999, of 13.0%. Discounts were based on interest rates at
the time of origination. Notes receivable are generally collateralized by real
estate or interests in real estate and personal guarantees of the borrower. A
majority of the notes receivable provide for interest to be paid at the note's
maturity.

Deferred gains result from property sales where the buyer has either made an
inadequate down payment or has not met the continuing investment test of SFAS
No. 66. See NOTE 2. "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Revenue
recognition on the sale of real estate."

In January and July 1999, a $1.7 million note receivable was collected in full,
including a $400,000 participation fee.

In August 1999, a $2.6 million loan was funded to JNC Enterprises, Inc. ("JNC").
The loan was subsequently split into two pieces. The loans are secured by
second liens on a 3.5 acre and a 1.2561 acre parcel of land in Dallas, Texas,
the guarantee of the borrower and the personal guarantees of its shareholders.
The loans bear interest at 16.0% per annum and matured in February 2000. All
principal and interest were due at maturity. JNC used $2.3 million of the loan
proceeds to paydown the Cuchara $4.2 million note receivable. In March 2000,
the $2.0 million loan secured by the 3.5 acre land parcel was collected in full,
including accrued but unpaid interest. Negotiations are in process to extend
the remaining loan, which is cross-collateralized with the other JNC loans
funded by the Partnership.

In September 1999, in conjunction with the sale of two of its apartments, the
Partnership provided $2.1 million in purchase money financing secured by limited
partnership interests in two limited partnerships owned by the buyer. The
financing bears interest at 16.0% per annum, requires monthly payments of
interest only at 6.0%, beginning in February 2000 and a $200,000 principal
paydown in December 1999, which was not received, and matures in August 2000.
The Partnership had the option to obtain the buyer's general and limited
partnership interests in full satisfaction of the financing. In March 2000,
NRLP agreed to forbear foreclosing on the collateral and release one of the
partnership interests, in exchange for payment of $250,000 and executed deeds of
trusts on certain properties, which was received. In addition, the borrower is
to make a $1.1 million payment in April 2000. Upon receipt of the April 2000
payment, NRLP will return the deeds of trust and terminate the option agreement.
The borrower will execute a replacement promissory note for the remaining note
balance, estimated to be $1.0 million, which will be unsecured, non-interest
bearing and mature in April 2003.

In December 1999, a note with a principal balance of $1.2 million and secured by
a pledge of partnership interest in a partnership which owns

54
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 4. NOTES RECEIVABLE (Continued)

real estate in Addison, Texas, matured. The maturity date was extended to April
2000, in exchange for an increase in the interest rate to 14.0% per annum. All
other terms remained the same.

During 1998 and 1999, a total of $31.0 million of a $52.5 million loan
commitment was funded to Centura Tower, Ltd. ("Centura"). The loan was secured
by 2.244 acres of land and an office building under construction in Farmers
Branch, Texas. In August 1999, the Partnership exercised its option contained
in the loan agreement, and obtained a combined 80% general and limited
partnership interest in Centura in exchange for a $24.1 million capital
contribution through conversion of a portion of its note receivable to an equity
interest. The $8.3 million balance of the note continued as a loan to Centura.
Centura is consolidated for financial statement purposes and the loan balance is
eliminated in consolidation. In December 1999, the construction debt secured by
the Centura Tower Office Building was refinanced with a new construction loan in
the amount of $28.8 million, of which $21.7 million was funded initially. The
Partnership received net cash of $8.6 million after paying off $11.0 million in
construction debt, the funding of required escrows and the payment of various
closing costs. The new mortgage bears interest at a variable rate, currently
9.75% per annum, requires monthly payments of interest only and matures in
December 2000. Through December 1999, a total of $132,000 in interest was
capitalized. Through February 2000, the lender has advanced an additional $2.6
million under the construction loan.

In August 1998, a $6.0 million loan was funded to Centura Holdings, LLC, a
subsidiary of Centura. The loan was secured by 6.4109 acres of land in Farmers
Branch, Texas. In November 1999, the land was transferred to NLP/CH, Ltd., a
partnership in which the Partnership has a combined 80% general and limited
partnership interest. The borrower holds the remaining 20% limited partnership
interest. NLP/CH, Ltd. is consolidated for financial statement purposes.

Also in August 1998, a $3.7 million loan was funded to JNC. The loan was secured
by a contract to purchase 387 acres of land in Collin County, Texas, the
guarantee of the borrower and the personal guarantees of its shareholders. The
loan bore interest at 12.0% per annum and matured in February 1999. All
principal and interest were due at maturity. In January 1999, ART purchased the
contract from JNC and acquired the land. In connection with the purchase, an
additional $6.0 million of GCLP's loan commitment to ART was advanced. A portion
of the funds were used to payoff the $3.7 million loan, including accrued but
unpaid interest, paydown by $1.3 million another JNC loan from the Partnership
and paydown by $820,000 the JNC Frisco Panther Partners, Ltd. loan from the
Partnership.

During 1998 and 1999, $2.1 million of a $2.2 million loan commitment was funded
to Varner Road Partners, L.L.C. The loan was secured by a 129.77

55
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 4. NOTES RECEIVABLE (Continued)

acre parcel of unimproved land in Riverside County, California and a pledge of
the membership interests of the borrower. The loan matured in November 1999.
Principal and accrued interest were not paid at maturity and the borrower deeded
the property to the Partnership in lieu of foreclosure. No loss was incurred, as
the fair market value of the property, less estimated costs of sale, exceeded
the carrying value of the note receivable.

In June 1998, a $365,000 loan was funded to RB Land & Cattle, L.L.C. The loan
was secured by 7,200 acres of unimproved land near Crowell, Texas, and the
personal guarantee of the owner and manager of the borrower. The loan matured in
December 1998. All principal and interest were due at maturity. The loan,
including accrued but unpaid interest, was collected in full in January 2000.

Also in June 1998, a $2.4 million loan was funded to Cuchara Partners, Ltd. and
Ski Rio Partners, Ltd., affiliates of JNC. The loan is secured by (1) a first
lien on approximately 450 acres of land in Huerfano County, Colorado, known as
Cuchara Valley Mountain Ski Resort; (2) an assignment of a $2.0 million
promissory note which is secured by approximately 2,623 acres of land in Taos
County, New Mexico, known as Ski Rio Resort; and (3) a pledge of all related
partnership interests. The loan bears interest at 16.0% per annum and has an
extended maturity of March 2000. All principal and interest are due at maturity.
In July 1998, an additional $1.8 million, was funded increasing the loan balance
to $4.2 million. In the fourth quarter of 1998, $109,000 was received on the
sale of 11 parcels of the collateral property in Taos, New Mexico. In August
1999, $2.3 million was received. In September 1999, a paydown of $1.0 million
was received. The loan had a principal balance of $1.6 million at December 31,
1999, and is cross-collateralized with the other JNC loans funded by the
Partnership.

In the second quarter of 1999, a total of $3.7 million was collected on two
mortgage notes receivable, of which the Partnership used $3.5 million of the
note proceeds to paydown a loan partially secured by one of the paid off notes.

56
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 4. NOTES RECEIVABLE (Continued)

In August 1998, a $635,000 loan was funded to La Quinta Partners, LLC. The loan
was secured by interest bearing accounts prior to being used as escrow deposits
toward the purchase of a total of 956 acres of land in La Quinta, California,
and the personal guarantee of the manager of the borrower. The loan matured in
November 1998. All principal and interest were due at maturity. In November and
December 1998, $250,000 in principal paydowns were received. In the second
quarter of 1999, the loan was modified, increasing the interest rate to 15.0%
per annum and extending the maturity date to November 1999. Accrued but unpaid
interest was added to the principal balance, increasing it by $42,000 to
$402,000. In the fourth quarter of 1999, an additional $2,000 was funded,
increasing the loan balance to $404,000. In March 2000, $25,000 in interest was
collected and the loan's maturity was extended to April 2000.

In 1997 and 1998, a $3.8 million loan was funded to Stratford & Graham
Developers, L.L.C. In 1999, an additional $305,000 was funded, increasing the
loan balance to $4.1 million. The loan was secured by 1,485 acres of unimproved
land in Riverside County, California. The loan matured in June 1999. The loan
was not paid at maturity. The borrower deeded the collateral property to the
Partnership in December 1999. No loss was incurred as the fair market value of
the property, less estimated costs of sale, exceeded the carrying value of the
note.

In October 1998, three loans to JNC or affiliated entities were funded. The
first JNC loan of $1.0 million was secured by a second lien on 3.5 acres of land
in Dallas, Texas, the guarantee of the borrower and the personal guarantees of
its shareholders. This loan was collected in July 1999, prior to its maturity.
The second loan, also $1.0 million, was secured by a second lien on 2.92 acres
of land in Dallas, Texas, the guarantee of the borrower and the personal
guarantees of its shareholders. This loan was collected in full in March 1999,
also prior to its maturity. The third loan, in the amount of $2.1 million, was
to a JNC affiliate, Frisco Panther Partners, Ltd. The loan is secured by a
second lien on 408.23 acres of land in Frisco, Texas, the guarantee of the
borrower and the personal guarantees of its partners. In January 1999, a
paydown of $820,000 was received on this loan. The loan matured in October
1999. At maturity, the loan was extended to March 2000, in exchange for an
increase in the interest rate to 16.0% per annum. All principal and interest
are due at maturity. This loan is cross-collateralized with the other JNC loans
funded by the Partnership.

Also in October 1998, a $350,000 loan was funded to Four "J" International
Corp., 5J-CTMS, Ltd. and an individual. The loan was secured by 1.1 million
Class A limited partnership units in Grapevine American Ltd. The loan bore
interest at 15.0% per annum and matured in February 1999. All principal and
interest were due at maturity. The loan was collected in full in January 1999.

57
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 4. NOTES RECEIVABLE (Continued)

In March 1998, the Partnership ceased receiving the required payments on a $3.0
million note receivable secured by an office building in Dallas, Texas. In
October 1998, the Partnership began foreclosure proceedings. In March 1999, the
Partnership received payment in full, including accrued but unpaid interest.

In December 1998, $3.3 million of a $5.0 million loan commitment was funded to
JNC. In January 1999, a $1.3 million paydown was received on the loan, and
subsequently an additional $3.0 million was funded, increasing the loan balance
to $5.0 million. The loan is secured by a second lien on 1,791 acres of land in
Denton County, Texas, and, until July 1999, a second lien on 220 acres of land
in Tarrant County, Texas. In July 1999, the second lien on the 220 acres of land
was released and a second lien on 91 acres of land in Collin County, Texas was
substituted. At maturity in December 1999, the loan was extended to March 2000,
in exchange for an increase in the interest rate to 16.0% per annum. All
principal and interest are due at maturity. The loan is cross-collateralized
with the other JNC loans funded by the Partnership.

At December 31, 1998, the Partnership's one wraparound mortgage note receivable,
with a principal balance of $5.4 million and a net carrying value of $489,000,
was in default. The Partnership had been vigorously pursuing its rights
regarding the loan to no avail. In December 1999, the Partnership sold the note
to BCM at its carrying value, retaining the right to receive any amounts
collected by BCM in excess of the amount it paid for the note.

In July 1997, a $700,000 loan was funded to an individual. In February 1998, an
additional $40,000 was funded and the loan was modified, increasing the
principal balance to $740,000. The loan was secured by a security interest in an
oil, gas and mineral lease in Anderson County, Texas, and by a second lien
mortgage on a ranch in Henderson County, Texas. The loan bore interest at 12.0%
per annum, required monthly payments of interest only and had an extended
maturity of September 1999. In November 1999, the Partnership received payment
in full, including accrued but unpaid interest.

In 1998, the Partnership originated 16 mortgage or other loans totaling $97.8
million, secured by land, an office building under construction, partnership
interests in entities owning real property, personal guarantees, a pledge of a
note receivable secured by a ranch, pledge of contracts to purchase land,
partnership units, and by second liens on apartments and a shopping center. The
loans bore interest rates ranging from 10.0% to 16.0% per annum, required either
monthly or at maturity, payments of interest, and matured from December 1998 to
January 2003.

Also in 1998, the Partnership collected $22.6 million on its mortgage notes
receivable from the payoff of five notes. In connection with one of the payoffs,
the Partnership paid off an underlying note payable in

58
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 4. NOTES RECEIVABLE (Continued)

the amount of $14.6 million and recognized a gain of $1.0 million on the early
collection, as well as a previously deferred gain of $11.2 million from the
Partnership's 1988 sale of the property securing such note. In connection with
another of the payoffs, the Partnership made a $3.5 million paydown on a
mortgage partially secured by one of the notes.

Related Party. In 1998 and 1999, GCLP funded $124.4 million of a $125.0
million loan commitment to ART. The loan is secured by second liens on six ART
properties in Minnesota, Mississippi and Texas, by the stock of ART Holdings,
Inc., a wholly-owned subsidiary of ART that owns 3,349,535 NRLP limited partner
units, by the stock of NMC, also a wholly-owned subsidiary of ART and the
general partner of the Partnership, a pledge of 678,475 NRLP limited partner
units owned by BCM and a pledge of 283,034 NRLP limited partner units owned by
ART. The loan bears interest at 12.0% per annum, requires monthly payments of
interest only and matures in November 2003. In February and October 1999, a
total of $1.1 million in paydowns on the loan were received.

In December 1998, in connection with the Moorman litigation settlement, NMC, a
wholly-owned subsidiary of ART, and the general partner of the Partnership,
assumed responsibility for repayment to the Partnership of the $12.2 million
paid by the Partnership to the Moorman Class Members and legal counsel. The loan
bears interest at a variable rate, currently 8.0% per annum, and requires annual
payments of accrued interest plus principal payments of $500,000 in each of the
first three years, $750,000 in each of the next three years, $1.0 million in
each of the next three years, with payment in full of the remaining balance in
the tenth year. The note is guaranteed by ART. The note matures upon the earlier
of the liquidation or dissolution of the Partnership, NMC ceasing to be general
partner or ten years from March 31, 1999, the date of the first cash
distribution to the Moorman Class Members. See NOTE 13. "COMMITMENTS AND
CONTINGENCIES."

In February 1999, a $5.0 million unsecured loan was funded by GCLP to One Realco
Corporation, formerly Davister Corp., which at December 31, 1999, owned
approximately 15.8% of the outstanding shares of ART's common stock. The loan
bears interest at 12.0% per annum and matured in February 2000. All principal
and interest were due at maturity. The loan is guaranteed by BCM. In March
2000, all accrued but unpaid interest was collected and the loan's maturity was
extended to February 2002. All the terms of the loan remained unchanged.

59
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 4. NOTES RECEIVABLE (Continued)

In 1998, a loan commitment of $1.8 million was funded to Warwick of Summit, Inc.
("Warwick"), of which $619,000 was used to repay a Warwick affiliate's loan from
the Partnership. The loan was secured by a second lien on a shopping center in
Rhode Island, by 100% of the stock of the borrower and by the personal guarantee
of the principal shareholder of the borrower. The loan bears interest at 14.0%
per annum and has an extended maturity of December 2000. All principal and
interest were due at maturity. In December 1999, the borrower sold the
collateral property. The Partnership received $810,000 of the net proceeds of
the sale, of which $386,000 was applied to accrued interest and the remaining
$424,000 was applied to principal. The Partnership is to receive escrowed
monies in 2000. Through February 2000, $50,000 has been received. The loan is
currently unsecured. In October 1999, Richard D. Morgan, a Warwick shareholder,
was elected a Director of NMC, the general partner of the Partnership.

Beginning in 1997 and through January 1999, a $1.6 million loan commitment was
funded to Bordeaux Investments Two, L.L.C. ("Bordeaux"). The loan is secured by
(1) a 100% membership interest in Bordeaux, which owns a shopping center in
Oklahoma City, Oklahoma; (2) 100% of the stock of Bordeaux Investments One,
Inc., which owns 6.5 acres of unimproved land in Oklahoma City, Oklahoma; and
(3) the personal guarantees of the Bordeaux members. The loan bears interest at
14.0% per annum. Until November 1998, the loan required monthly payments of
interest only at the rate of 12.0% per annum, with the deferred interest payable
at maturity in January 1999. In November 1998, the loan was modified to allow
payments based on monthly cash flow of the collateral property and the maturity
date was extended to December 1999. In the second quarter of 1999, the loan was
again modified, increasing the loan commitment to $2.1 million and an additional
$33,000 was funded. In the third quarter of 1999, an additional $213,000 was
funded. The property has had no cash flow, therefore, the Partnership ceased
accruing interest on the loan in the second quarter of 1999. In October 1999, a
$724,000 paydown was received, which was applied first to accrued but unpaid
interest due of $261,000, then to principal, reducing the loan balance to $1.4
million. Negotiations are in process to further modify and extend the loan. In
October 1999, Richard D. Morgan, a Bordeaux member, was elected a Director of
NMC, the general partner of the Partnership.

In October 1999, GCLP funded a $4.7 million loan to Realty Advisors, Inc., the
corporate parent of BCM. The loan is secured by a pledge of 100% of Realty
Advisors, Inc.'s interest in an insurance company. The loan bears interest at
10.25% per annum and matures in November 2001. All principal and interest are
due at maturity.

60
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 5. ALLOWANCE FOR ESTIMATED LOSSES

The allowance for estimated losses was as follows:

1999 1998 1997
------- ------- -------

Balance December 31,.. $1,910 $1,910 $1,910
====== ====== ======

NOTE 6. INVESTMENTS IN MARKETABLE EQUITY SECURITIES OF AFFILIATE

The Partnership owns 195,732 shares of ART common stock, approximately 1.9% of
ART's outstanding shares, which the Partnership acquired in open market
purchases in 1990 at an adjusted cost of $269,000. ART is a publicly held real
estate company. The Partnership considers the ART common stock to be available-
for-sale and the shares are carried at fair value (period end market value). The
market value of the ART common stock was $3.3 million at December 31, 1999 and
$3.2 million at December 31, 1998. See NOTE 1. "ORGANIZATION - Proposed
Transaction with American Realty Investors, Inc."

NOTE 7. NOTES AND INTEREST PAYABLE

Notes and interest payable consist of the following:

1999 1998
--------------------- ---------------------
Estimated Book Estimated Book
---------- --------- ---------- ---------
Fair Value Value Fair Value Value
---------- --------- ---------- ---------

Notes payable..... $270,066 $276,872 $334,076 $357,201
======== ========
Interest payable.. 862 899
-------- --------
$277,734 $358,100
======== --------

Scheduled notes payable principal payments are due as follows:

2000................................. $ 36,201
2001................................. 21,082
2002................................. 13,330
2003................................. 54,036
2004................................. 3,292
Thereafter........................... 148,931
--------
$276,872
========

Notes payable at December 31, 1999 and 1998 are collateralized by notes
receivable, land, buildings and improvements and are generally nonrecourse to
the Partnership. The GCLP Phase I mortgage debt, as discussed below, is cross-
collateralized and cross-defaulted among the ten apartments and one shopping
center that serve as collateral for such debt. Notes payable at December 31,
1999, bear interest at stated rates

61
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 7. NOTES AND INTEREST PAYABLE (Continued)

ranging from 6.5% to 14.0% per annum with a weighted average rate of 9.73% per
annum and such notes have maturities or call dates ranging from one to 23 years.

In 1999, the Partnership refinanced the mortgage debt secured by two apartments
and obtained mortgage financing for two unencumbered apartments, two commercial
properties and five notes receivable in the total amount of $27.4 million. The
Partnership received net cash of $20.4 million after paying off $6.2 million in
mortgage debt, the funding of escrows and the payment of various closing costs.
The mortgages bear interest rates ranging from 7.72% to 14.0% per annum, require
monthly payments of principal and interest of $202,697 and mature from December
2000 to February 2019.

In 1998, the Partnership refinanced the mortgage debt secured by three
apartments, obtained a second lien mortgage on another apartment and obtained
mortgage financing for four unencumbered apartments and seven notes receivable
in the total amount of $37.4 million. The Partnership received net cash of $27.8
million after paying off $7.1 million in mortgage debt, the funding of escrows
and the payment of various closing costs. The mortgages bear interest rates
ranging from 6.2% to 14.0% per annum, require monthly payments of principal and
interest of $277,000 and mature from December 1999 to September 2009.

In addition, in July 1998, two mortgage loans in the total amount of $7.0
million secured by six of the Partnership's mortgage notes receivable were paid
in full.

Also in July 1998, GCLP commenced a three-phase refinancing of the mortgage debt
secured by its 50 properties. Phase I consisted of 18 of the properties, in
Arizona, Florida, Illinois, Indiana, Kansas, Missouri, Oklahoma and Texas, which
were refinanced in the total amount of $150.0 million. GCLP received net cash of
$33.6 million after paying off $102.9 million in mortgage debt, the funding of
required escrows and the payment of various closing costs. This mortgage bears
interest at 6.88% per annum, currently requires monthly payments of principal
and interest of $400,000 and matures in July 2003. The mortgage requires that
the cash flow from the collateral properties be used to fund various escrow and
reserve accounts and limits the payment of distributions to the Partnership.

Phase II consisted of a bridge financing of 29 of GCLP's properties, in Arizona,
Arkansas, California, Colorado, Florida, Georgia, Kansas, Louisiana, Michigan,
Missouri, Nebraska, Ohio, Oklahoma, Tennessee, Texas and Virginia, which were
refinanced in the total amount of $86.2 million. GCLP received net cash of $1.4
million after paying off $80.0 million in mortgage debt, the funding of required
escrows and the payment of various closing costs.

62
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 7. NOTES AND INTEREST PAYABLE (Continued)

In September 1998, GCLP completed Phase III of the refinancing by refinancing
the properties secured by the Phase II bridge loan. The mortgage debt secured by
the properties was refinanced in the total amount of $90.7 million. GCLP
received net cash of $1.7 million after paying off $83.4 million of Phase II
mortgage principal and interest and funding of required escrows and the payment
of various closing costs. The new mortgages bear interest at rates ranging from
6.535% to 6.77% per annum, require monthly payments of principal and interest
totaling $582,690 and mature in October 2008. After the payoff of the bridge
loan, 16 GCLP properties were unencumbered. $13.2 million of the net cash
received from the refinancings was used to pay off debt secured by NOLP's
interest in GCLP.

NOTE 8. GENERAL PARTNER FEES AND COMPENSATION

General. NMC is the general partner of the Partnership. The officers of NMC
also serve as officers and directors of various other real estate entities.
These entities may have the same objectives and may be engaged in activities
similar to those of the Partnership.

Property Management Fees. As compensation for providing property management
services to the Partnership's properties, as provided in the partnership
agreement, NMC or an affiliate of NMC is to receive a reasonable property
management fee. Currently, Triad Realty Services, Ltd. ("Triad"), an affiliate
of NMC, provides such property management services for a fee of 5% of the
monthly gross rents collected on the properties under its management. Triad
subcontracts with other entities for property-level management services to the
Partnership at various rates. The general partner of Triad is BCM. The limited
partners of Triad are Syntek West, Inc. ("Syntek West"), a company owned by Gene
E. Phillips, and Mr. Phillips. Triad subcontracts the property-level management
and leasing of 12 of the Partnership's commercial properties to Regis Realty,
Inc. ("Regis") which is a company owned by Syntek West. Regis is entitled to
receive property and construction management fees and leasing commissions in
accordance with the terms of its property-level management agreement with Triad.

Leasing Commissions. As compensation for providing leasing and rent-up
services for Partnership properties, as provided in the partnership agreement,
NMC or an affiliate of NMC shall be paid a reasonable leasing commission.

Reimbursement of Administrative Expenses. To the extent that officers or
employees of NMC or any of its affiliates participate in the operation or
administration of the Partnership, NMC and its affiliates are to be reimbursed
under the partnership agreement for salaries, travel, rent, depreciation,
utilities and general overhead items

63
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 8. GENERAL PARTNER FEES AND COMPENSATION (Continued)

incurred and properly allocable to such services. Such amounts are included in
General and Administrative Expense in the accompanying Consolidated Statements
of Operations.

General Partner Compensation. As base compensation for providing
administrative and management services under the partnership agreement, NMC is
entitled to receive an annual partnership management fee equal to 10% of the
distributions made in each calendar year of Cash from Operations, as defined in
the partnership agreement, for the calendar year, payable within 90 days after
the end of that calendar year. As additional incentive compensation, NMC is
entitled to receive in each calendar year an amount equal to 1% of the Average
Unit Market Price, as defined in the partnership agreement, for that calendar
year. Provided, however, that no incentive compensation is payable unless
distributions of Cash from Operations exceed 6% of the Exchange Value of the
original assets, also as defined in the partnership agreement. The general
partner waived its base compensation during the pendency of the Moorman
Settlement Agreement.

Real Estate Brokerage Commissions. NMC or an affiliate of NMC may, pursuant to
the partnership agreement, charge a reasonable real estate brokerage commission,
payable at the time the Partnership acquires title to, or beneficial ownership
in, an acquired property. Upon the sale of any property by the Partnership, NMC
or an affiliate of NMC may, pursuant to the partnership agreement, charge a
reasonable real estate brokerage commission, payable at the time the Partnership
transfers title to the property. In each case, such commissions are payable only
if NMC or affiliates of NMC actually performed brokerage services.

Incentive Disposition Fee. Under the partnership agreement, NMC or an
affiliate of NMC is paid a fee equal to 10% of the amount, if any, by which the
Gross Sales Price, as defined in the partnership agreement, of any property sold
by the Partnership exceeds 110% of the Adjusted Cost, also as defined in the
partnership agreement, of such property.

Acquisition Fees. As compensation under the partnership agreement for services
rendered in structuring and negotiating the acquisition by the Partnership of
any property, other than an Initial Property, as defined in the partnership
agreement, NMC or an affiliate of NMC is to be paid a fee in an amount equal to
1% of the Original Cost, also as defined in the partnership agreement, of such
property.

Fees For Additional Services. Under the partnership agreement, NMC or an
affiliate of NMC may provide services other than those set out above for the
Partnership in return for reasonable compensation.

64
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 8. GENERAL PARTNER FEES AND COMPENSATION (Continued)

Fees and cost reimbursement to NMC and its affiliates:

1999 1998 1997
-------- -------- -------

Property and construction management fees*.. $ 1,942 $ 1,786 $ 826
Loan placement fees......................... 561 2,735 332
Real estate commissions..................... 5,383 2,029 414
General Partner fees........................ 2,509 -- --
Leasing commissions......................... 97 82 96
Reimbursement of administrative expenses.... 4,728 3,865 4,448
------- ------- ------
$15,220 $10,497 $6,116
======= ======= ======
- ---------------------

* Net of property management fees paid to subcontractors, other than Regis.

NOTE 9. RENTS UNDER OPERATING LEASES

The Partnership's operations include the leasing of commercial properties
(office buildings and shopping centers). The leases thereon expire at various
dates through 2013. The following is a schedule of minimum future rents on non-
cancelable operating leases as of December 31, 1999.

2000........................ $ 7,977
2001........................ 6,451
2002........................ 5,379
2003........................ 4,570
2004........................ 3,879
Thereafter.................. 10,596
-------
$38,852
=======

NOTE 10. INCOME TAXES

The Partnership's partners include their share of partnership income in their
respective tax returns and, accordingly, no income taxes have been provided in
the accompanying Consolidated Statements of Operations.

In December 1987, Congress passed legislation requiring that partnership losses
for certain publicly traded partnerships be suspended for limited partners and
carried forward to offset future income or gain from the partnership's
operations or gain upon a limited partner's disposition of all units held. Any
remaining income will be taxed as portfolio income.

65
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 11. OPERATING SEGMENTS

Significant differences among the accounting policies of the operating segments
as compared to the Consolidated Financial Statements principally involve the
calculation and allocation of general and administrative expenses. Management
evaluates the performance of each of the operating segments and allocates
resources to each of them based on their operating income and cash flow.
Expenses that are not reflected in the segments are $6.7 million in 1999 and
$6.8 million in 1998 of general and administrative expenses and $2.5 million in
1999 of general partner fees. Excluded from operating segment assets are
assets of $23.8 million in 1999 and $53.9 million in 1998, which are not
identifiable with an operating segment. There are no intersegment revenues and
expenses and all business is conducted in the United States. See NOTE 3. "REAL
ESTATE" and NOTE 4. "NOTES RECEIVABLE."

Presented below is the operating income of each operating segment and each
segment's assets.

<TABLE>
<CAPTION>
Commercial
Properties Apartments Receivables Total
1999 ---------- ---------- ----------- --------

<S> <C> <C> <C> <C>
Rents............................... $ 9,942 $77,036 $ -- $ 86,978
Property operating expenses......... 4,430 45,671 -- 50,101
Interest income..................... -- -- 17,340 17,340
Interest expense--notes receivable.. -- -- 882 882
------- ------- -------- --------
Operating income.................... $ 5,512 $31,365 $ 16,458 $ 53,335
======= ======= ======== ========

Depreciation........................ $ 2,135 $ 5,573 $ -- $ 7,708
Interest on debt.................... 2,685 23,650 -- 26,335
Real estate improvements............ 483 1,563 -- 2,046
Construction expenditures........... 23,468 5,244 -- 28,712
Assets.............................. 93,038 90,424 168,064 351,526
</TABLE>

Apartments Land Total
---------- -------- --------
Property Sales

Sales price........... $179,700 $1,767 $181,467
Cost of sales......... 64,752 2,272 67,024
-------- ------ --------
Gain (loss) on sales.. $114,948 $ (505) $114,443
======== ====== ========

66
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 11. OPERATING SEGMENTS (Continued)

<TABLE>
<CAPTION>
Commercial
1998 Properties Apartments Receivables Total
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Rents............................... $ 9,985 $ 97,142 $ -- $107,127
Property operating expenses......... 4,566 58,170 -- 62,736
Interest income..................... -- -- 5,235 5,235
Interest expense--notes receivable.. -- -- 1,164 1,164
------- -------- -------- --------
Operating income.................... $ 5,419 $ 38,972 $ 4,071 $ 48,462
======= ======== ======== ========
Depreciation........................ $ 2,450 $ 7,241 $ -- $ 9,691
Interest on debt.................... 3,669 34,435 -- 38,104
Real estate improvements............ 1,150 1,670 -- 2,820
Assets.............................. 27,279 140,130 116,435 283,844
</TABLE>

Commercial
Properties Apartments Other Total
---------- ---------- ----- --------
Property Sales

Sales price..... $17,932 $62,240 $800 $80,972
Cost of sales... 17,101 23,654 28 40,783
------- ------- ---- -------
Gain on sales... $ 831 $38,586 $772 $40,189
======= ======= ==== =======

NOTE 12. QUARTERLY DATA

The following is a tabulation of quarterly results of operations for the years
1999 and 1998 (unaudited).

Three Months Ended
---------------------------------------------
1999 March 31 June 30 September 30 December 31
-------- -------- ------------ -----------

Revenues..................... $27,816 $27,911 $26,494 $22,433
Expenses..................... 25,543 23,592 24,176 20,947
------- ------- ------- -------

Income from operations....... 2,273 4,319 2,318 1,486
Gain on sale of real estate.. 15,667 8,738 49,614 40,424
------- ------- ------- -------
Net income................... $17,940 $13,057 $51,932 $41,910
======= ======= ======= =======

Earnings per unit
Net income................. $ 2.78 $ 2.02 $ 8.05 $ 6.51
======= ======= ======= =======

During the first quarter of 1999, the Partnership sold three apartments,
realizing gains totaling $15.7 million. During the second quarter of 1999, the
Partnership sold three apartments, realizing gains totaling $8.7 million. In the
third quarter of 1999, the Partnership sold five apartments, realizing gains
totaling $49.6 million. In the fourth quarter of 1999, the Partnership sold
three apartments and a parcel of unimproved land, realizing net gains totaling
$40.4 million. See NOTE 3. "REAL ESTATE."

67
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 12. QUARTERLY DATA (Continued)

<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
1998 March 31 June 30 September 30 December 31
-------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues....................... $29,578 $28,186 $27,897 $28,173
Expenses....................... 29,070 34,678 29,829 25,355
------- ------- ------- -------

Income (loss) from operations.. 508 (6,492) (1,932) 2,818
Gain on sale of real estate.... -- 28,633 5,583 18,373
------- ------- ------- -------
Net income..................... $ 508 $22,141 $ 3,651 $21,191
======= ======= ======= =======

Earnings per unit
Net income................... $ .08 $ 3.43 $ .57 $ 3.28
======= ======= ======= =======
</TABLE>

During the second quarter of 1998, the Partnership sold three apartments, two
shopping centers and 338 acres of unimproved land realizing gains totaling $16.4
million and recognized a gain of $1.0 million, as well as a deferred gain of
$11.2 million on the payoff of a note receivable. During the third quarter of
1998, the Partnership sold two apartments realizing gains totaling $5.6 million.
During the fourth quarter of 1998, the Partnership sold five apartments
realizing gains totaling $18.4 million. See NOTE 3. "REAL ESTATE" and NOTE 4.
"NOTES RECEIVABLE."

NOTE 13. COMMITMENTS AND CONTINGENCIES

Moorman Settlement

The Partnership entered into a settlement agreement, dated May 9, 1990, relating
to the action entitled Moorman, et al. v. Southmark Corporation, et al. Such
action was filed on September 2, 1987, in the Superior Court of the State of
California, County of San Mateo. The Partnership agreed to settle such action
pursuant to the terms of a written agreement (the "Moorman Settlement
Agreement").

The Moorman Settlement Agreement provided for a plan (the "Moorman Settlement
Plan") consisting of, among other things, the following: (1) the appointment and
operation of a committee (the "Oversight Committee"), to oversee the
implementation of the Moorman Settlement Plan, and (2) the establishment of
specified annually increasing targets (each a "Target") for each of the five
years through May 1995, relating to the price of the units of limited partner
interest.

68
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

met. Since the Targets were not met for two successive years, the Moorman
Settlement Agreement required that SAMLP resign as general partner, effective
upon the election and qualification of its successor. On July 8, 1992, SAMLP
notified the Oversight Committee of the failure to meet the Target for two
successive years.

Upon, among other things, the withdrawal of SAMLP as General Partner and the due
election and taking office of a successor, the Moorman Settlement Plan would
terminate. Withdrawal of SAMLP as general partner pursuant to the Moorman
Settlement Agreement required unitholders to elect a successor general partner
by majority vote.

The Moorman Settlement Agreement provided that withdrawal of SAMLP as general
partner would require the Partnership to acquire SAMLP's interest in the
Partnership (the "Redeemable General Partner Interest") at its then fair value,
and to pay certain fees and other compensation, as provided in the partnership
agreement and the Moorman Settlement Agreement. Under the Moorman Settlement
Agreement, payment for such Redeemable General Partner Interest, fees and other
compensation could have, at the Oversight Committee's option, been paid over a
three year period pursuant to a secured promissory note bearing interest at a
financial institution's prime rate and containing commercially reasonable terms
and collateral. Under the Moorman Settlement Plan, the purchase price for
Redeemable General Partner Interest would have been calculated, as of the time
SAMLP withdrew as general partner under the Partnership's governing documents.

On July 15, 1998, NRLP, SAMLP and the Oversight Committee executed an Agreement
for Cash Distribution and Election of Successor General Partner (the "Cash
Distribution Agreement") which provided for the nomination of NMC, which is an
entity affiliated with SAMLP, to be the successor general partner of the
Partnership, for the distribution of $11.4 million to the Moorman Class Members
and for the resolution of all related matters under the Moorman Settlement
Agreement. The Cash Distribution Agreement was submitted to the Court on July
23, 1998. On August 4, 1998, the Court entered an order granting preliminary
approval of the Cash Distribution Agreement. On September 9, 1998, a notice was
mailed to the Moorman Class Members describing the Cash Distribution Agreement.
On October 16, 1998, a hearing was held to consider any objections to the Cash
Distribution Agreement. On October 23, 1998, the Court entered an order granting
final approval of the Cash Distribution Agreement. The Court also entered orders
requiring the Partnership to pay $404,000 in attorney's fees to Joseph B.
Moorman's legal counsel, $30,000 to Joseph B. Moorman and $404,000 in attorney's
fees to Robert A. McNeil's legal counsel.

69
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)

Moorman Settlement (Continued)

Pursuant to the order, in November 1998, $11.4 million was deposited by the
Partnership into an escrow account and then transferred to the control of an
independent settlement administrator. The distribution of the cash was made to
the Moorman Class Members pro rata based upon the number of units originally
issued to each Moorman Class Member upon the formation of the Partnership in
1987. On March 10, 1999, the Court entered an order providing for the initial
distribution of the cash not later than March 31, 1999. The distribution of cash
was under the control of the independent settlement administrator.

The proposal to elect NMC the successor general partner was submitted to the
unitholders of NRLP for a vote. All units of the Partnership owned by affiliates
of SAMLP (approximately 61.8% of the outstanding units as of the November 27,
1998, record date) were voted pro rata with the vote of the other limited
partners. NMC was elected by a majority of the unitholders. The Moorman
Settlement Plan remained in effect until December 18, 1998, when SAMLP resigned
as general partner and NMC was elected and took office.

Under the Cash Distribution Agreement, SAMLP waived its right under the Moorman
Settlement Agreement to receive any payment from the Partnership for its
Redeemable General Partner Interest or fees it was entitled to receive upon the
election of a successor general partner. In addition, pursuant to the Cash
Distribution Agreement, the partnership agreement was amended to provide that,
upon voluntary resignation of the general partner, the resigning general partner
shall not be entitled to the repurchase of its general partner interest under
Paragraph 17.9 of the partnership agreement.

Under the Cash Distribution Agreement, NMC assumed liability for SAMLP's note
for its capital contribution to the Partnership. In addition, NMC assumed
liability for a note receivable which will require the repayment to the
Partnership of the $11.4 million paid by the Partnership under the Cash
Distribution Agreement plus the $808,000 in court ordered attorney's fees and
the $30,000 paid to Joseph B. Moorman. This note requires repayment over a ten-
year period, bears interest at a variable rate, currently 8.0% per annum, and is
guaranteed by ART, which is the parent of NMC, and owns approximately 55.4% of
the outstanding units of the Partnership.

Other Litigation. The Partnership is also involved in various other lawsuits
arising in the ordinary course of business. In the opinion of management, the
outcome of these lawsuits will not have a material effect on the Partnership's
financial condition, results of operations or liquidity.

70
<PAGE>

NATIONAL REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTE 14. SUBSEQUENT EVENTS

In March 2000, the Partnership sold the 172 unit Summerwind Apartments in
Reseda, California, for $9.0 million, receiving net cash of $3.1 million after
the payment of various closing costs. The purchaser assumed the $5.6 million
mortgage secured by the property. A gain will be recognized on the sale.

Also in March 2000, the Partnership sold the 159 unit Windtree Apartments in
Reseda, California, for $8.4 million, receiving net cash of $2.9 million after
the payment of various closing costs. The purchaser assumed the $5.1 million
mortgage secured by the property. A gain will be recognized on the sale.

71
<PAGE>

SCHEDULE III

NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
<TABLE>
<CAPTION>

Subsequent to Gross Amount Carried at
Initial Cost Acquisition Cost of Period (1)
------------------ ---------------------- -----------------------------
Building and Building and Accumulated
Description Encumbrances Land Improvements Improvements Other Land Improvements Total Depreciation
- ------------------------ ------------ ---- ------------ ------------ ----- ---- ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Held for Investment
Apartments
Arlington Place........ $4,348 $ 330 $3,275 $ 752 $ -- $ 330 $4,027 $ 4,357 $2,964
Pasadena, TX
Bent Tree.............. 8,640 1,047 7,036 783 -- 1,047 7,819 8,866 4,701
Addison, TX
Blackhawk.............. 4,122 253 4,081 292 -- 253 4,373 4,626 3,035
Ft. Wayne, IN
Bridgestone............ 2,115 169 1,780 192 -- 169 1,972 2,141 1,184
Friendswood, TX
Candlelight Square..... 2,787 145 1,928 192 -- 145 2,120 2,265 1,465
Lenexa, KS
Chalet I............... 4,190 260 2,994 65 -- 260 3,059 3,319 1,812
Topeka, KS
Chalet II.............. 1,581 440 1,322 - -- 440 1,322 1,762 157
Topeka, KS
Chateau................ 3,421 130 1,723 141 -- 130 1,864 1,994 1,140
Bellevue, NE
Club Mar............... 6,324 1,248 4,993 272 -- 1,248 5,265 6,513 927
Sarasota, FL
Confederate Point...... 5,375 246 3,736 723 -- 246 4,459 4,705 3,076
Jacksonville, FL
Covered Bridge......... 4,433 219 3,425 128 -- 219 3,553 3,772 2,923
Gainesville, FL
Fair Oaks.............. 4,847 470 2,661 174 -- 470 2,835 3,305 859
Euless, TX
Four Seasons........... 9,306 1,264 8,447 836 -- 1,264 9,283 10,547 4,479
Denver, CO
Foxwood................ 6,014 218 3,188 789 -- 218 3,977 4,195 2,550
Memphis, TN
Hidden Valley.......... 8,088 261 3,636 388 -- 261 4,024 4,285 2,383
Grand Rapids, MI
Kimberly Woods......... 6,275 571 3,802 1,282 -- 571 5,084 5,655 3,615
Tucson, AZ
La Mirada.............. 7,588 392 5,454 1,766 -- 392 7,220 7,612 4,826
Jacksonville, FL
Lake Shore Villas...... 4,197 2,554 159 5,232 11/(2)/ 2,554 5,402 7,956 --
Harris County, TX
Mallard Lake........... 7,698 534 7,099 858 -- 534 7,957 8,491 5,264
Greensboro, NC
Nora Pines............. 5,781 221 3,872 440 -- 221 4,312 4,533 3,025
Indianapolis, IN
Oak Tree............... 4,190 304 3,543 246 -- 304 3,789 4,093 2,042
Grandview, MO
</TABLE>

<TABLE>
<CAPTION>
Life on
Which
Depreciation
in Latest
Statement of
Date of Date Operation is
Description Construction Acquired Computed
- ----------------------- ------------ -------- -------------
<S> <C> <C> <C>
Held for Investment
Apartments
Arlington Place........ 1973 11/76 5 - 40 years
Pasadena, TX
Bent Tree.............. 1980 06/80 5 - 40 years
Addison, TX
Blackhawk.............. 1972 12/78 7 - 40 years
Ft. Wayne, IN
Bridgestone............ 1979 06/82 7 - 40 years
Friendswood, TX
Candlelight Square..... 1971 11/77 7 - 40 years
Lenexa, KS
Chalet I............... 1964/74/78 04/82 7 - 40 years
Topeka, KS
Chalet II.............. 1986 03/95 40 years
Topeka, KS
Chateau................ 1968 02/81 5 - 40 years
Bellevue, NE
Club Mar............... 1973 07/93 5 - 40 years
Sarasota, FL
Confederate Point...... 1969 05/79 5 - 40 years
Jacksonville, FL
Covered Bridge......... 1972 10/79 7 - 40 years
Gainesville, FL
Fair Oaks.............. 1978 07/89 7 - 40 years
Euless, TX
Four Seasons........... 1970 07/84 5 - 40 years
Denver, CO
Foxwood................ 1974 08/79 5 - 40 years
Memphis, TN
Hidden Valley.......... 1973 07/81 5 - 40 years
Grand Rapids, MI
Kimberly Woods......... 1973 12/77 5 - 40 years
Tucson, AZ
La Mirada.............. 1971 01/79 5 - 40 years
Jacksonville, FL
Lake Shore Villas...... 2000 06/99 (3)
Harris County, TX
Mallard Lake........... 1974 05/79 5 - 40 years
Greensboro, NC
Nora Pines............. 1970 05/78 5 - 40 years
Indianapolis, IN
Oak Tree............... 1968 03/82 7 - 40 years
Grandview, MO
</TABLE>

72
<PAGE>

SCHEDULE III
(Continued)

NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
<TABLE>
<CAPTION>

Apartments--Continued
Pheasant Ridge............. $ 6,438 $231 $4,682 $1,099 $ -- $231 $5,781 $6,012 $3,834
Bellevue, NE
Pines...................... 3,074 278 3,490 317 -- 278 3,807 4,085 2,574
Little Rock, AR
Place One.................. 7,271 783 5,186 1,008 -- 783 6,194 6,977 4,619
Tulsa, OK
Quail Point................ 3,792 184 2,716 267 -- 184 2,983 3,167 2,227
Huntsville, AL
Regency.................... 3,311 304 1,865 412 -- 304 2,277 2,581 1,269
Lincoln, NE
Rockborough................ 10,124 701 4,495 1,113 -- 701 5,608 6,309 3,841
Denver, CO
Shadowood.................. 4,766 477 3,208 207 -- 477 3,415 3,892 2,244
Addison, TX
Sherwood Glen.............. 4,651 352 2,550 545 -- 352 3,095 3,447 2,342
Urbandale, IA
Stonebridge................ 2,986 193 2,076 261 -- 193 2,337 2,530 1,599
Florissant, MO
Summerwind................. 5,576 493 2,990 174 -- 493 3,164 3,657 2,426
Reseda, CA
Sun Hollow................. 4,667 385 4,159 75 -- 385 4,234 4,619 2,674
El Paso, TX
Timber Creek............... 4,700 154 2,327 726 -- 154 3,053 3,207 2,207
Omaha, NE
Villa Del Mar.............. 3,755 387 3,134 116 -- 387 3,250 3,637 1,946
Wichita, KS
Villas..................... 5,542 516 3,948 607 -- 516 4,555 5,071 3,010
Plano, TX
Whispering Pines........... 3,444 322 1,255 152 -- 322 1,407 1,729 265
Canoga Park, CA
Whispering Pines........... 5,216 228 4,330 1,097 -- 228 5,427 5,655 3,534
Topeka, KS
Windtree I & II............ 5,070 460 2,739 214 -- 460 2,953 3,413 2,193
Reseda, CA
Wood Hollow................ 5,521 888 7,261 1,818 (100)/(4)/ 888 8,979 9,867 6,368
San Antonio, TX
Woodlake................... 8,740 585 5,848 1,041 -- 585 6,889 7,474 4,245
Carrollton, TX
Woodsong II................ 5,827 322 3,705 339 -- 322 4,044 4,366 3,263
Smyrna, GA
Woodstock.................. 5,561 888 5,193 417 -- 888 5,610 6,498 3,653
Dallas, TX
</TABLE>

Apartments--Continued
Pheasant Ridge............. 1974 10/78 5 - 40 years
Bellevue, NE
Pines...................... 1977 11/77 5 - 40 years
Little Rock, AR
Place One.................. 1970 04/77 5 - 40 years
Tulsa, OK
Quail Point................ 1960 08/75 5 - 40 years
Huntsville, AL
Regency.................... 1973 05/82 5 - 40 years
Lincoln, NE
Rockborough................ 1973 01/78 5 - 40 years
Denver, CO
Shadowood.................. 1976 02/79 7 - 40 years
Addison, TX
Sherwood Glen.............. 1970 12/77 5 - 40 years
Urbandale, IA
Stonebridge................ 1975 10/77 5 - 40 years
Florissant, MO
Summerwind................. 1976 02/77 5 - 40 years
Reseda, CA
Sun Hollow................. 1977 09/79 7 - 40 years
El Paso, TX
Timber Creek............... 1974 10/78 5 - 40 years
Omaha, NE
Villa Del Mar.............. 1971 10/81 7 - 40 years
Wichita, KS
Villas..................... 1977 04/79 7 - 40 years
Plano, TX
Whispering Pines........... 1977 12/93 7 - 40 years
Canoga Park, CA
Whispering Pines........... 1972 02/78 5 - 40 years
Topeka, KS
Windtree I & II............ 1976 11/76 5 - 40 years
Reseda, CA
Wood Hollow................ 1974 11/78 5 - 40 years
San Antonio, TX
Woodlake................... 1979 08/78 5 - 40 years
Carrollton, TX
Woodsong II................ 1975 08/80 7 - 40 years
Smyrna, GA
Woodstock.................. 1977 12/78 7 - 40 years
Dallas, TX
</TABLE>

73
<PAGE>

SCHEDULE III
(Continued)

NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
<TABLE>
<CAPTION>

Shopping Centers
Cross County Mall.......... 6,784 608 6,468 6,255 -- 608 12,723 13,331 8,613
Mattoon, IL
Cullman.................... 355 400 1,830 159 -- 400 1,989 2,389 1,247
Cullman, AL
Harbor Plaza............... 1,758 821 2,587 366 -- 821 2,953 3,774 1,869
Aurora, CO
Katella Plaza.............. 1,197 -- 2,844 479 -- -- 3,323 3,323 2,266
Orange, CA
Regency Point.............. 1,817 647 5,156 2,391 -- 1,792 6,402 8,194 3,045
Jacksonville, FL
Westwood................... 4,558 -- 5,424 1,082 1,058/(5)/ 1,058 6,506 7,564 3,342
Tallahassee, FL

Land
Centura Holdings, Farmers -- 7,070 -- -- -- 7,070 -- 7,070 --
Branch, TX................
Woolley, Farmers Branch, TX -- 214 -- -- -- 214 -- 214 --
-------- ------- -------- ------- -------------- ------- -------- -------- --------

Investment Properties...... 271,872 37,639 228,187 60,697 (4,160) 39,842 282,521 322,363 146,534
-------- ------- -------- ------- -------------- ------- -------- -------- --------
</TABLE>

<TABLE>
<CAPTION>
Life on
Which
Depreciation
in Latest
Statement of
Date of Date Operation is
Description Construction Acquired Computed
- ----------------------- ------------ -------- -------------
<S> <C> <C> <C>
Held for Investment-Continued
Office Buildings
56 Expressway.............. 1981 03/82 5 - 40 years
Oklahoma City, OK
Centura Tower.............. 2000 08/99 (3)
Farmers Branch, TX
Cooley Building............ 1976 05/99 5 - 40 years
Farmers Branch, TX
Executive Court............ 1980 09/82 5 - 40 years
Memphis, TN
Marina Playa............... 1972 12/76 3 - 40 years
Santa Clara, CA
Melrose Business Park...... 1980 03/82 5 - 40 years
Oklahoma City, OK
University Square.......... 1981 12/81 5 - 40 years
Anchorage, AK

Shopping Centers
Cross County Mall.......... 1971 08/79 5 - 40 years
Mattoon, IL
Cullman.................... 1979 02/79 5 - 40 years
Cullman, AL
Harbor Plaza............... 1979 09/81 5 - 40 years
Aurora, CO
Katella Plaza.............. 1971 12/80 5 - 40 years
Orange, CA
Regency Point.............. 1982 06/84 5 - 40 years
Jacksonville, FL
Westwood................... 1980 10/83 5 - 40 years
Tallahassee, FL

Land
Centura Holdings, Farmers -- 11/99 --
Branch, TX................
Woolley, Farmers Branch, TX -- 12/99 --

Investment Properties......
</TABLE>

74
<PAGE>

SCHEDULE III
(Continued)

NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
<TABLE>
<CAPTION>

Held for Sale
Land
Varner Road, Riverside, CA. $ -- $ 2,551 $ -- $ -- $ -- $ 2,551 $ -- $ 2,551 $ --
Willow Springs, Riverside, -- 5,082
-------- ------- -------- ------- ------- ------- -------- --------- --------
Properties Held for Sale... -- 7,633 -- -- -- 7,633 -- 7,633 --
-------- ------- -------- ------- ------- ------- -------- --------- --------
$271,872 $45,272 $228,187 $60,697 $(4,160) $47,475 $282,521 $ 329,996 $146,534
======== ======= ======== ======= ======= ======= ======== ========= ========
</TABLE>

Held for Sale
Land
Varner Road, Riverside, CA........ $ -- 11/99 --
Willow Springs, Riverside, CA.....
Properties Held for Sale.......... -- 12/99 --
</TABLE>
- -----------------------------
(1) The aggregate cost for financial statement purposes approximates that for
federal tax purposes.
(2) Construction period interest.
(3) Under construction at December 31, 1999.
(4) Write-down of property to estimated net realizable value.
(5) Acquisition of ground leases.

75
<PAGE>

SCHEDULE III
(Continued)

NATIONAL REALTY, L.P.

REAL ESTATE AND ACCUMULATED DEPRECIATION

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(dollars in thousands)
Reconciliation of Real Estate

<S> <C> <C> <C>
Balance at January 1,....................... $ 365,179 $435,215 $447,968

Acquisitions............................. 9,262 -- --
Foreclosure.............................. 7,633 -- --
Conversion of notes receivable........... 31,921 -- --
Improvements and construction............ 30,758 2,820 5,004
Sales.................................... (114,757) (72,856) (17,757)
--------- -------- --------

Balance at December 31,..................... $ 329,996 $365,179 $435,215
========= ======== ========

Reconciliation of Accumulated Depreciation

Balance at January 1,....................... $ 197,770 $223,791 $223,204

Depreciation............................. 7,708 9,691 10,338
Sales.................................... (58,944) (35,712) (9,751)
--------- -------- --------

Balance at December 31,..................... $ 146,534 $197,770 $223,791
========= ======== ========
</TABLE>

76
<PAGE>

SCHEDULE IV

NATIONAL REALTY, L.P.

MORTGAGE LOANS ON REAL ESTATE

December 31, 1999

<TABLE>
<CAPTION>
Principal
Amount of
Loans
Face Carrying Subject to
Final Amount Amounts Delinquent
Interest Maturity Prior of of Principal
Description Rate Date Periodic Payment Terms Liens Mortgage Mortgage/(1)/ or Interest
- ------------------------------ --------- -------- -------------------------- ------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
First Mortgage Loans

Cuchara Partners, Ltd.
and Ski Rio 16.00% 03/00 All principal and $ -- $1,912 $1,581 $ --
Partners, Ltd. /(2)(3)/..... interest are due at
Secured by approximately 450 maturity.
acres of land in Huerfano
County, CO and a promissory
note secured by 2,623 acres
of land in Taos, NM

Ellis Development
Company, Inc................. 14.00% 08/00 All principal and -- 946 942 --
Secured by 4.5 acres of land interest are due at
in Abilene, TX; collateral maturity.
assignment of a $220,000 note;
and the guarantees of the
borrowers.

RB Land and Cattle, LLC....... 10.00% 12/98 All principal and -- 350 367 --
Secured by a 7,200 acre ranch interest are due
in Foard County, TX. at maturity.

Junior Mortgage Loans

JNC Enterprises, 16.00% 03/00 All principal and -- 1,950 1,950 --
Ltd.-Broomfield/(2)/......... interest are due at
Secured by second lien on 3.5 maturity.
acres of land in Dallas, TX.

JNC Enterprises, Ltd.-Frisco 16.00% 03/00 All principal and -- 1,280 1,263 --
Panther Partners, interest are due at
Ltd. /(2)(3)/................ maturity.
Secured by a second lien on
408.23 acres of land in
Frisco, TX.

JNC Enterprises, Ltd. - Laws 16.00% 03/00 All principal and -- 600 600 --
/(2)(3)/..................... interest are due at
Secured by second lien on 1.3 maturity.
acres of land in Dallas, TX.

JNC Enterprises, Ltd.-Line of 16.00% 03/00 All principal and -- 5,000 5,000 --
Credit /(2)(3)/.............. interest are due at
Secured by a second lien on maturity.
1,791 acres of land in
Denton County, TX and a
second lien on 91 acres of
land in Plano, TX.
</TABLE>

77
<PAGE>

SCHEDULE IV
(Continued)
NATIONAL REALTY, L.P.

MORTGAGE LOANS ON REAL ESTATE

December 31, 1999

<TABLE>
<CAPTION>
Principal
Amount of
Loans
Face Carrying Subject to
Final Amount Amounts Delinquent
Interest Maturity Prior of of Principal
Description Rate Date Periodic Payment Terms Liens Mortgage Mortgage/(1)/ or Interest
- --------------------------- --------- -------- ------------------------- ----------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Other

American Realty Trust, Inc. 12.00% 11/03 Monthly interest only. $ -- 125,000 $124,482 $ --
Secured by second liens on
six properties located in
Minnesota, Mississippi and
Texas, the stock of ART
Holdings, Inc., the stock
of NMC, a pledge of 678,475
NRLP units of limited
partnerunits owned by
BCM and a pledge of
283,034 NRLP limited
partner units owned by ART.

14875 Landmark /(3)/....... 14.00% 04/00 Monthly interest only. -- 1,175 1,175 --
Secured by a pledge of
partnership interest
in Landmark which owns
commercial real estate
in Addison, TX.

Bordeaux Investments....... 14.00% 12/99 All principal and -- 1,591 1,353 --
Secured by (1) a 100% interest are due
membership interest in
Bordeaux, at maturity.
which owns a shopping
center in Oklahoma City, OK;
(2) 100% of the stock of
Bordeaux Investments
One, Inc., which owns 6.5
acres of undeveloped land
in Oklahoma City, OK; and
(3) the personal guarantees
of the Bordeaux members.

La Quinta Land Partners, 15.00% 04/00 All principal and -- 635 404 404
LLC....................... interest are due
Secured by the personal at maturity.
guarantee of the manager
of the borrower.

Realty Advisors, Inc....... 10.25% 11/01 All principal and -- 4,749 4,749 --
Secured by 100% of its interest are due
interest in an at maturity.
insurance company.

Treetops/Colony Meadows.... 16.00% 08/00 $200,000 principal due in -- 2,300 2,147 2,147
Secured by limited December 1999. Monthly
partnership interest in payments of interest
two limited partnerships only at 6.0%
which own apartments in beginning February 2000.
Houston, TX.
</TABLE>

78
<PAGE>

SCHEDULE IV--(Continued)

NATIONAL REALTY, L.P.

MORTGAGE LOANS ON REAL ESTATE

December 31, 1999

<TABLE>
<CAPTION>
Principal
Amount of
Loans
Face Carrying Subject to
Final Amount Amounts Delinquent
Interest Maturity Prior of of Principal
Description Rate Date Periodic Payment Terms Liens Mortgage Mortgage/(1)/ or Interest
- --------------------------- --------- -------- -------------------------- ---------- ----------- -------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Unsecured

NRLP Management Corp....... LIBOR + 02/09 Annual payments of $ -- $ 12,425 $ 12,425 $ --
2.00% interest plus $500,000 in
each of the first 3 years,
$750,000 in each of the next
3 years, $1.0 million in each
of the next 3 years, with all
remaining principal and
interest due at maturity.

One Realco Corp............ 12.00% 02/02 All principal and -- 4,970 4,970 --
interest are due at
maturity.

Warwick of Summit, Inc..... 14.00% 12/00 All principal and -- 1,886 1,670 --
interest are due ------ -------- -------- -------------
at maturity.

$ -- $166,769 165,078 $ 2,551
====== ======== =============

Interest receivable........ 2,986
Allowance for estimated
losses.................... (1,910)
--------
$166,154
========
</TABLE>

- ----------------------------

(1) The aggregate cost for financial statement purposes approximates that for
federal tax purposes.
(2) Cross-collateralized and cross-defaulted.
(3) Cross-collateral securing a $5.0 million note payable.

79
<PAGE>

SCHEDULE IV
(Continued)

NATIONAL REALTY, L.P.

MORTGAGE LOANS ON REAL ESTATE

<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- --------
(dollars in thousands)

<S> <C> <C> <C>
Balance at January 1,....................... $ 115,984 $ 40,318 $ 30,908

Additions

Amortization of discount.................. -- -- 34
Funding of notes receivable............... 106,524 98,716 22,898
Interest compounded....................... 1,504 -- --

Deductions
Collections of principal.................. (18,443) (23,050) (13,522)

Foreclosures................................ (6,389) -- --
Conversion to property interest............. (28,711) -- --
Sale of note................................ (5,391) -- --
---------- --------- --------

Balance at December 31,..................... $ 165,078 $ 115,984 $ 40,318
========== ========= ========
</TABLE>

80
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

------------------------------------------

PART III

ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER

As partnerships, neither National Realty, L.P. ("NRLP") nor National Operating,
L.P. ("NOLP") (collectively "NRLP") has officers or directors. The general
partner of NRLP and NOLP is NRLP Management Corp. ("NMC"), and it manages the
day-to-day affairs of NRLP and NOLP which includes all decisions with respect to
the acquisition, disposition, improvement, financing or refinancing of
properties. Basic Capital Management, Inc. ("BCM"), an affiliate of NMC,
performs certain administrative functions and other services for cost
reimbursements and fees as described in ITEM 1. "BUSINESS--Management and
Operations." The Directors of NMC are listed below, together with their ages,
terms of service, their principal occupations, business experience, and
directorships with other companies during the last five years or more.

Directors

Karl L. Blaha: Age 52, Director (since December 1998), President (since August
1999) and Executive Vice President--Commercial Asset Management (January 1998 to
August 1999) of NMC.

President (since September 1999), Executive Vice President--Commercial
Asset Management (July 1997 to September 1999), and Executive Vice
President and Director of Commercial Management (April 1992 to August 1995)
of BCM, Income Opportunity Realty Investors, Inc. ("IORI") and
Transcontinental Realty Investors, Inc. ("TCI"); Director (since June
1996), President (since October 1993) and Executive Vice President and
Director of Commercial Management (April 1992 to October 1993) of American
Realty Trust, Inc. ("ART"); Director (since November 1998) of SAMI and
Garden National Realty, Inc.; Executive Vice President (October 1992 to
July 1997) of Carmel Realty, Inc. ("Carmel"), a company owned by First
Equity Properties, Inc. ("First Equity"), a company 50% owned by BCM; and
Director and President (since 1996) of First Equity.

Collene C. Currie: Age 51, Director (since April 1998).

Vice President and Senior Relationship Manager (February 1996 to March
2000) of Bank of America Private Bank (formerly NationsBank Private Client
Group of Dallas); Director (since February 1999) of ART; Director of
Marketing and Communications (October 1993 to January 1999) of the Dallas
Opera; and Business Transformation Consultant (August 1988 to October 1993)
for IBM.

81
<PAGE>

ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER (Continued)

Directors (Continued)

Richard D. Morgan (David): Age 60, Director (since October 1999).

Founder and President (since 1989) of Tara Group, Inc.

Board Committees

Fairness Committee. NRLP's Fairness Committee periodically reviewed certain
transactions between NRLP and its affiliates. The NRLP partnership agreement
requires Fairness Committee approval of the interest rate to be paid on loans
from the general partner or its affiliates, the terms of any property sales to
or purchases from the general partner or its affiliates, the purchase of
securities from the general partner or its affiliates and, upon any withdrawal
of the general partner, the purchase price of the general partner's interest in
NRLP and in the fees and other compensation to be paid under the partnership
agreement.

The NRLP partnership agreement provides that the Fairness Committee shall
consist of two or more natural persons, none of whom shall be affiliates (as
defined) of the general partner except as directors of the general partner. The
Fairness Committee has had no members since August 1995.

Audit Committee. NMC has an Audit Committee, the function of which is to review
NRLP's operating and accounting procedures. The members of the Audit Committee
are Ms. Currie and Mr. Morgan. The Audit Committee met twice in 1999.

Executive Officers

The following persons , in addition to Karl L. Blaha, currently serve as
executive officers of NMC: Bruce A. Endendyk, Executive Vice President; Thomas
A. Holland, Executive Vice President and Chief Financial Officer; Steven K.
Johnson, Executive Vice President--Residential Asset Management and David W.
Starowicz, Executive Vice President-Commercial Asset Management. Their positions
with NMC are not subject to a vote of unitholders. Their ages, terms of service,
all positions and offices with NMC, other principal occupations, business
experience and directorships with other companies during the last five years or
more of Messrs. Endendyk, Holland, Johnson and Starowicz are set forth below.

Bruce A. Endendyk: Age 51, Executive Vice President (since January 1998) of NMC.

President (since November 1999) of Regis Realty, Inc. ("Regis") and (since
January 1995) of Carmel; and Executive Vice President (since January 1995)
of BCM, ART, IORI and TCI.

82
<PAGE>

ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER (Continued)

Executive Officers (Continued)

Thomas A. Holland: Age 57, Executive Vice President and Chief Financial Officer
(since January 1998) of NMC.

Executive Vice President and Chief Financial Officer (since August 1995),
Secretary (February 1997 to June 1999) and Senior Vice President (July 1990
to August 1995) of IORI and TCI; and Executive Vice President and Chief
Financial Officer (since August 1995) and Senior Vice President and Chief
Accounting Officer (July 1990 to August 1995) of BCM and ART.

Steven K. Johnson: Age 42, Executive Vice President--Residential Asset
Management (since August 1998).

Executive Vice President--Residential Asset Management (since August 1998)
and Vice President (August 1990 to August 1991) of BCM, ART, IORI and TCI;
Chief Operating Officer (January 1993 to August 1998) of Garden Capital,
Inc.; and Executive Vice President (December 1994 to August 1998) of Garden
Capital Management, Inc.

DAVID W. STAROWICZ: Age 44, Executive Vice President--Commercial Asset
Management (since September 1999).

Executive Vice President-Commercial Asset Management (since September
1999), Vice President (May 1992 to September 1999) and Asset Manager
(November 1990 to May 1992) of BCM, ART, IORI and TCI.

Officers

Although not an executive officer of NMC, Robert A. Waldman, Senior Vice
President, Secretary and General Counsel, currently serves as an officer of
NMC. His position with NMC is not subject to a vote of unitholders. His age,
term of service, all positions and offices with NMC, other principal
occupations, business experience and directorships with other companies during
the last five years or more are set forth below.

Robert A. Waldman: Age 47, Senior Vice President, Secretary and General Counsel
(since January 1998) of NMC.

Senior Vice President and General Counsel (since January 1995), Vice
President (December 1990 to January 1995) and Secretary (December 1993 to
February 1997 and since June 1999) of IORI and TCI; Senior Vice President
and General Counsel (since November 1994), Vice President and Corporate
Counsel (November 1989 to November 1994), and Secretary (since November
1989) of BCM; and Senior Vice President and General Counsel (since January
1995), Vice President (January 1993 to January 1995) and Secretary (since
December 1989) of ART.

In addition to the foregoing officer, NMC has several vice presidents and
assistant secretaries who are not listed herein.

83
<PAGE>

ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER (Continued)

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Under the securities laws of the United States, the directors and executive
officers of NMC, NRLP's general partner, and any persons holding more than 10%
of NRLP's units of limited partner interest are required to report their
ownership of NRLP's units and any changes in that ownership to the Securities
and Exchange Commission (the "Commission"). Specific due dates for these reports
have been established and NRLP is required to report any failure to file by
these dates during 1999. All of these filing requirements were satisfied by the
directors and executive officers of NMC, NRLP's general partner, and 10%
holders. In making these statements, management has relied on the written
representations of the directors and executive officers of NMC, NRLP's general
partner, and its ten percent holders and copies of the reports that they have
filed with the Commission.

Administrative Agent

BCM performs certain administrative functions such as accounting services,
mortgage servicing and real estate portfolio review and analysis for NRLP on a
cost reimbursement basis.

Affiliates of BCM perform property management, loan placement, leasing and real
estate brokerage and acquisition services, and may perform other services, for
NRLP for fees and commissions. BCM's principal business activity is the
providing of advisory services for real estate companies. See ITEM 13. "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."

The directors and principal officers of BCM are set forth below.

Mickey N. Phillips................. Director

Ryan T. Phillips................... Director

Carey M. Portman................... Director and Vice President

Karl L. Blaha...................... President

Bruce A. Endendyk.................. Executive Vice President

Thomas A. Holland.................. Executive Vice President and Chief
Financial Officer

Steven K. Johnson.................. Executive Vice President--Residential
Asset Management

84
<PAGE>

ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER (Continued)

Administrative Agent (Continued)

A. Cal Rossi, Jr....... Executive Vice President

Cooper B. Stuart....... Executive Vice President

David W. Starowicz..... Executive Vice President--Commercial
Asset Management

Clifford C. Towns, Jr.. Executive Vice President--Finance

Dan S. Allred.......... Senior Vice President--Land Development

D. Brian Barton........ Senior Vice President-Portfolio Manager

Michael E. Bogel....... Senior Vice President-Projects Manager

James D. Canon, III.... Senior Vice President--Portfolio Manager

Robert A. Waldman...... Senior Vice President, Secretary and
General Counsel

Mickey N. Phillips is Gene E. Phillips' brother and Ryan T. Phillips is Gene E.
Phillips' son.

ITEM 11. EXECUTIVE COMPENSATION

NRLP has no employees, payroll or benefit plans and pays no salary or other cash
compensation directly to any person. However, NRLP does pay fees and expense
reimbursements in accordance with its partnership agreement to NMC or to
affiliates of NMC for services provided to NRLP. See ITEM 8. "FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA."

NMC also has no employees, payroll or benefit plans and pays no compensation to
its officers. However, it does pay compensation to its Independent Directors.
Each Independent Director receives compensation in the amount of $15,000 per
year, plus reimbursement for expenses. During 1999, $17,500 was paid to the
Independent Directors in total Directors fees for all services during the period
January 1, 1999 through December 31, 1999, as follows: Collene C. Currie,
$15,000 and Richard D. Morgan, $2,500.

85
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION (Continued)

Performance Graph

The following performance graph compares the cumulative total unitholder return
on NRLP's units of limited partner interest with the Dow Jones Market Equity
Index ("DJ Equity Index") and the Dow Jones Real Estate Index ("DJ Real Estate
Index"). The comparison assumes that $100 was invested on December 31, 1994 in
NRLP's units of limited partner interest and in each of the indices and further
assumes the reinvestment of all distributions. Past performance is not
necessarily an indicator of future performance.

[GRAPH APPEARS HERE]

1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>

NRLP 100.00 124.34 157.32 296.64 301.12 235.64

DJ Equity Index 100.00 137.67 169.39 226.96 291.91 351.37
DJ Real Estate
Index 100.00 123.58 165.91 198.45 154.57 143.90
=================================================================
</TABLE>

86
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners. The following table sets
forth the ownership of NRLP's units of limited partner interest, both
beneficially and of record, both individually and in the aggregate, for those
persons known by NRLP to be beneficial owners of more than 5% of its units of
limited partner interest, as of the close of business on March 3, 2000.

<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Amount and Address of Beneficial Owner Ownership Class (1)
- ---------------------------------------- ----------------- -----------
<S> <C> <C>
American Realty Trust, Inc.............. 3,501,569 55.4%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231

Basic Capital Management, Inc........... 786,975 12.4
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
</TABLE>

- -------------

(1) Percentage is based upon 6,321,522 units of limited partner interest
outstanding at March 3, 2000.

Security Ownership of Management. The following table sets forth the ownership
of NRLP's units of limited partner interest, both beneficially and of record,
both individually and in the aggregate, by NMC and the executive officers and
directors of NMC, as of the close of business on March 3, 2000.

<TABLE>
<CAPTION>
Percent of
Name of Beneficial Owner Number of Units Units (1)
- -------------------------------------------------------- --------------- -----------
<S> <C> <C>
NMC and the executive officers and directors of NMC as
a group (7 individuals)................................ 4,288,544/(2)/ 67.8%
</TABLE>

- -----------------------------

(1) Percentage is based upon 6,321,522 units of limited partner interest
outstanding as of March 3, 2000.

(2) Includes 3,501,569 units owned by ART and 786,975 units owned by BCM, of
which the directors and executive officers of NMC, ART and BCM may be
deemed to be the beneficial owners by virtue of their positions as
directors and executive officers of NMC, ART and BCM. The directors and
executive officers of NMC, ART and BCM disclaim beneficial ownership of
such units.

87
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Business Relationships

NRLP is the sole limited partner of NOLP and owns 99% of the beneficial interest
in NOLP. NMC is the general partner of, and owner of a 1% beneficial interest
in, each of NRLP and NOLP.

On December 18, 1998, NMC was elected general partner of NRLP and NOLP,
replacing Syntek Asset Management, L.P. ("SAMLP"). NMC is a wholly-owned
subsidiary of ART. SAMLP resigned as general partner of NRLP and NOLP on
December 18, 1998.

Since February 1, 1990, affiliates of NMC have provided property management
services to NRLP. Currently, Triad Realty Services, Ltd. ("Triad") provides
property management services for a fee of 5% of the monthly gross rents
collected on the properties under its management. Triad subcontracts with other
entities for the property-level management services to NRLP at various rates.
The general partner of Triad is BCM. The limited partners of Triad are Syntek
West, Inc. ("Syntek West"), a company owned by Gene E. Phillips, and Mr.
Phillips. BCM is a company which is owned by a trust for the benefit of the
children of Mr. Phillips. BCM performs certain administrative and other
functions for NRLP. See ITEM 1. "BUSINESS--Management and Operations" and ITEM
11. "EXECUTIVE COMPENSATION."

Messrs. Blaha, Endendyk, Holland, Johnson and Starowicz serve as executive
officers of BCM. Messrs. Blaha, Endendyk, Holland, Johnson and Starowicz also
serve as executive officers of IORI, TCI and ART and BCM serves as advisor to
IORI, TCI and ART.

Related Party Transactions

NRLP has engaged in business transactions with certain related parties and may
continue to do so. NRLP believes that all of the related party transactions were
at least as advantageous to NRLP as could have been obtained from unrelated
third parties.

NRLP has paid and pays cost reimbursements, property management fees or other
cash compensation to NMC and its affiliates and other related parties as
described in ITEM 11. "EXECUTIVE COMPENSATION" and ITEM 1. "BUSINESS--Management
and Operations." BCM, an affiliate of NMC, performs certain administrative
functions for NRLP on a cost reimbursement basis. The Fairness Committee has
approved the formula for computing NRLP's proportionate share of certain of
BCM's reimbursable costs. Since February 1, 1990, affiliates of NMC have
provided property management services to NRLP. Currently, Triad provides such
property management services. Triad subcontracts with other entities for the
property-level management services to NRLP. Triad subcontracts the property-
level management and leasing of nine of NRLP's commercial properties to Regis,
which is a company owned by Syntek West. Regis is entitled to receive property
and construction management fees and leasing commissions in accordance with the
terms of its property-level management agreement with Triad. Triad and Regis
also perform similar services for ART, IORI

88
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Related Party Transactions (Continued)

and TCI. See NOTE 8. "GENERAL PARTNER FEES AND COMPENSATION" included in Notes
to Consolidated Financial Statements at ITEM 8. "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA," for a summary of fees paid and costs reimbursed by NRLP.

NRLP's Fairness Committee periodically reviewed certain transactions between
NRLP and its affiliates. See ITEM 1. "BUSINESS--Management and Operations." The
Fairness Committee approved the terms of NRLP's contracts and terms for services
and reimbursements with affiliates. The Fairness Committee has had no members
since August 1995.

Related Party. In 1998 and 1999, GCLP funded $124.4 million of $125.0 million
loan commitment to ART. The loan is secured by second liens on six ART
properties in Minnesota, Mississippi and Texas, by the stock of ART Holdings,
Inc., a wholly-owned subsidiary of ART that owns 3,349,535 NRLP units of limited
partner interest, by the stock of NMC, also a wholly-owned subsidiary of ART and
the general partner of NRLP, a pledge of 678,475 NRLP limited partner units
owned by BCM and a pledge of 283,034 NRLP limited partner units owned by ART.
The loan bears interest at 12.0% per annum, requires monthly payments of
interest only and matures in November 2003. In February and October 1999, a
total of $1.1 million in paydowns on the loan were received.

In December 1998, in connection with the Moorman litigation settlement, NMC, a
wholly-owned subsidiary of ART, and the general partner of NRLP, assumed
responsibility for repayment to NRLP of the $12.2 million paid by NRLP to the
Moorman Class Members and legal counsel. The loan bears interest at a variable
rate, currently 8.0% per annum, and requires annual payments of accrued interest
plus principal payments of $500,000 in each of the first three years, $750,000
in each of the next three years, $1.0 million in each of the next three years,
with payment in full of the remaining balance in the tenth year. The note is
guaranteed by ART. The note matures upon the earlier of the liquidation or
dissolution of NRLP, NMC ceasing to be the general partner or ten years from
March 31, 1999, the date of the first cash distribution to the Moorman Class
Members. See ITEM 3. "LEGAL PROCEEDINGS."

In February 1999, a $5.0 million unsecured loan was funded by GCLP to One Realco
Corporation, formerly Davister Corp., which at December 31, 1999 owned
approximately 15.8% of the outstanding shares of ART's common stock. The loan
bears interest at 12.0% per annum and matured in February 2000. All principal
and interest were due at maturity. The loan is guaranteed by BCM. In March
2000, all accrued but unpaid interest was collected and the loan's maturity was
extended to February 2002. All other terms of the loan remained unchanged.

89
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Related Party Transactions (Continued)

borrower. The loan bears interest at 14.0% per annum and has an extended
maturity of December 2000. All principal and interest are due at maturity. In
December 1999, the borrower sold the collateral property. NRLP received $810,000
of the net proceeds of the sale, of which $386,000 was applied to accrued
interest and the remaining $424,000 was applied to principal. NRLP is to
receive escrowed funds in 2000. Through February 2000, $50,000 had been
received. The loan is currently unsecured. In October 1999, Richard D. Morgan,
a Warwick shareholder, was elected a Director of NMC, the general partner of
NRLP.

Beginning in 1997 and through January 1999, a $1.6 million loan commitment was
funded to Bordeaux Investments Two, L.L.C. ("Bordeaux"). The loan is secured by
(1) a 100% membership interest in Bordeaux, which owns a shopping center in
Oklahoma City, Oklahoma; (2) 100% of the stock of Bordeaux Investments One,
Inc., which owns 6.5 acres of unimproved land in Oklahoma City, Oklahoma; and
(3) the personal guarantees of the Bordeaux members. The loan bears interest at
14.0% per annum. Until November 1998, the loan required monthly payments of
interest only at 12.0% per annum, with the deferred interest payable at maturity
in January 1999. In November 1998, the loan was modified to allow payments based
on monthly cash flow of the collateral property and the maturity date was
extended to December 1999. In the second quarter of 1999, the loan was
modified, increasing the loan commitment to $2.1 million and an additional
$33,000 was funded. In the third quarter of 1999, an additional $213,000 was
funded. The property has had no cash flow, therefore, NRLP ceased accruing
interest on the loan in the second quarter of 1999. In October 1999, a $724,000
paydown was received, which was applied first to accrued but unpaid interest due
of $261,000 then to principal, reducing the loan balance to $1.4 million.
Negotiations are in process to further modify and extend the loan. In October
1999, Richard D. Morgan, a Bordeaux member, was elected a Director of NMC, the
general partner of NRLP.

Indebtedness of Management

In return for its 1% interest in NRLP, the General Partner was required to make
aggregate capital contributions to NRLP in an amount equal to 1.01% of the total
initial capital contributions to NRLP. The general partner contributed $500,000
cash with the remaining portion evidenced by a promissory note in the principal
amount of $4.2 million, bearing interest at the rate of 10% per annum compounded
semi-annually and payable on the earlier of September 18, 2007, liquidation of
NRLP or a

90
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

Indebtedness of Management (Continued)

termination of the general partner's interest in NRLP. As of December 31, 1999,
no payments had been received on such note. At December 31, 1999, accrued and
unpaid interest on the note totaled $9.7 million. In connection with the
election and taking office of NMC as the new general partner on December 18,
1998, NMC assumed liability under the note.

----------------------

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Report:

1. Consolidated Financial Statements

Report of Independent Certified Public Accountants

Consolidated Balance Sheets--December 31, 1999 and 1998

Consolidated Statements of Operations--Years Ended December 31,
1999, 1998 and 1997

Consolidated Statements of Changes in Partners' Equity
(Deficit)--Years Ended December 31, 1999, 1998 and 1997

Consolidated Statements of Cash Flows--Years Ended December 31,
1999, 1998 and 1997

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

Schedule III--Real Estate and Accumulated Depreciation

Schedule IV --Mortgage Loans on Real Estate

All other schedules are omitted because they are not applicable or because the
required information is shown in the Consolidated Financial Statements or the
Notes thereto.

91
<PAGE>

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)

3. Exhibits

The following documents are filed as Exhibits to this Report:

Exhibit
Number Description
- ------ ---------------------------------------------------------------------

3.0 National Realty, L.P. Amended and Restated Certificate of Limited
Partnership, dated March 4, 1987 (incorporated by reference to
Exhibit 3.1 to the Registrant's Registration Statement No. 33-16215
on Form S-4).

3.1 Restated Certificate of Limited Partnership of National Realty, L.P.
dated as of January 22, 1996 (incorporated by reference to Exhibit
3.1 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998).

3.2 Certificate of amendment to Amended and restated Agreement of Limited
Partnership of National Realty, L.P. (incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998).

3.3 National Realty, L.P. First Amended and Restated Agreement of Limited
Partnership, dated as of January 29, 1987 (incorporated by reference
to Exhibit 4.1 to the Registrant's Registration Statement No. 33-
16215 on Form S-4).

3.4 Certificate of Amendment of Limited Partnership Agreement of National
Realty, L.P. dated as of May 14, 1990 (incorporated by reference to
Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990).

3.5 Second Amendment to First Amended and Restated Agreement of Limited
Partnership of National Realty, L.P. dated as of December 18, 1998
(incorporated by reference to Exhibit 3.5 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998).

3.6 Third Amendment to First Amended and Restated Agreement of Limited
Partnership of National Realty, L.P. dated as of December 18, 1998
(incorporated by reference to Exhibit 3.6 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998).

21.0 Subsidiaries of the Registrant, filed herewith.

27.0 Financial Data Schedule, filed herewith.

92
<PAGE>

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)

Exhibit
Number Description
- ------ ---------------------------------------------------------------------

99.0 Second Restated Amended Agreement of Limited Partnership of National
Operating, L.P. dated as of July 29, 1987 (incorporated by reference
to Exhibit 4.3 to the Registrant's Registration Statement No. 33-
16215 on Form S-4).

99.1 Certificate of Amendment of Limited Partnership Agreement of National
Operating, L.P. dated as of May 14, 1990 (incorporated by reference
to Exhibit 99.1 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1998).

99.2 Second Amendment to Second Restated and Amended Agreement of Limited
Partnership of National Operating, L.P. dated as of December 18, 1998
(incorporated by reference to Exhibit 99.2 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998).

99.3 Third Amendment to Second Restated and Amended Agreement of Limited
Partnership of National Operating, L.P. dated as of December 18, 1998
(incorporated by reference to Exhibit 99.3 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998).

99.4 Amended and Restated Certificate of Limited Partnership of National
Operating, L.P. dated as of December 18, 1998 (incorporated by
reference to Exhibit 3.1 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998).

99.5 Limited Partnership Agreement of Garden Capital, L.P. between Garden
Capital Management Incorporated and National Operating, L.P.
(incorporated by reference to Exhibit 28.2 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992).

99.6 Settlement Agreement, dated as of May 9, 1990, relating to the action
entitled Moorman et. al v. Southmark Corporation et al. (incorporated
by reference to Exhibit 5.1 to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1990).

99.7 Agreement for Cash Distribution and Election of Successor General
Partner dated as of July 15, 1998 (incorporated by reference to
Exhibit 99.3 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998).

(b) Reports on Form 8-K.

None.

93
<PAGE>

NATIONAL REALTY, L.P.

Signature Page

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

NATIONAL REALTY, L.P.

By its General Partner:

NRLP MANAGEMENT CORP.

By: /s/ Karl L. Blaha
----------------------------------
Karl L. Blaha
President

By: /s/ Thomas A. Holland
----------------------------------
Thomas A. Holland
Executive vice President
and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of NRLP Management
Corp., as General Partner of the Registrant and in the capacities and on the
dates indicated.

Signature Title Date
- ------------------------------- ---------------------- --------------

NRLP MANAGEMENT CORP.

/s/ Karl L. Blaha President and Director March 28, 2000
- -------------------------------
Karl L. Blaha

/s/ Collene C. Currie Director March 28, 2000
- -------------------------------
Collene C. Currie

/s/ Richard D. Morgan Director March 28, 2000
- -------------------------------
Richard D. Morgan

94
<PAGE>

NATIONAL REALTY, L.P.

EXHIBITS TO
ANNUAL REPORT ON FORM 10-K

For the Year Ended December 31, 1999

Exhibit
Number Description Page
- --------- ------------------------------ ----

21.0 Subsidiaries of the Registrant

27.0 Financial Data Schedule

<PAGE>

EXHIBIT 21.0

SUBSIDIARIES OF THE REGISTRANT
------------------------------

1. National Operating, L.P., a Delaware limited partnership.

2. Brookview NLP, Inc.; Covered Bridge NLP, Inc.; Four Seasons NLP, Inc.;
Granada NLP, Inc.; Harbor Plaza NLP, Inc.; Mallard Subsidiary Corporation;
Marina Playa NLP, Inc.; NLP Equity Lending I, Inc.; National Melrose, Inc.;
NLP 56 Expressway, Inc.; NLP Browning, Inc.; NLP Centura, Inc.; NLP Cooley,
Inc.; NLP Melrose, Inc.; Nora Pines NLP, Inc.; Regency NLP, Inc.; Sherwood
NLP, Inc.; SM Subsidiary Corp., Timbercreek NLP, Inc., all of which are
Nevada corporations, wholly-owned by National Operating, L.P.

3. Regency National Associates, Inc., a Texas corporation, wholly-owned by
National Operating, L.P.

4. National Subsidiary Corp., a Florida corporation, wholly-owned by National
Realty, L.P.

5. Bavarian Woods National Associates, an Ohio general partnership; Brookview
National Associates, a Georgia general partnership; Centura Tower, a Texas
limited partnership; Chalet II Associates, a Kansas general partnership;
NLP Covered Bridge National Associates, a Texas limited partnership; Four
Seasons National Associates, a Texas limited partnership; Granada National
Associates, a Nebraska general partnership; Quail Pointe Associates, an
Alabama general partnership; Mallard Diversified, L.P., a Illinois limited
partnership; NLP/CH, a Texas limited partnership; NLP Equity Lending I,
Ltd., a Texas limited partnership; NLP Harbor Plaza National Associates,
L.P., a Texas limited partnership; NLP Marina Playa National Associates,
L.P., a Texas limited partnership; Nora Pines National Associates, an
Indiana general partnership; Regency National Associates, a Nebraska
general partnership; Sherwood Glen National Associates, an Iowa general
partnership; NLP Timber Creek National Associates, a Nebraska general
partnership; The Vineyards National Associates, an Ohio general
partnership; Country Associates, L.P., a Texas general partnership;
Shoreview Towers Associates II, a Florida limited partnership; Cross County
National Associates, L.P., an Illinois limited partnership; Pines Whisper
Limited Partnership, a California limited partnership.

6. Garden Capital, L.P., a Delaware limited partnership. National Operating,
L.P. is the sole limited partner.

7. Garden Capital, L.L.C., a Delaware limited liability company.

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,066
<SECURITIES> 3,327
<RECEIVABLES> 168,064
<ALLOWANCES> 1,910
<INVENTORY> 0
<CURRENT-ASSETS> 0
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0
0
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</TABLE>